I am having a hard time understanding the differences between Straight vs cumulative. I understand the concept but get confused on the similarities between market prices and yields. what is an easy way to understand the difference?
Hi, straight is basically normal without any features.
Cumulative is a benefit to the investor, where they will get paid skipped dividends.
There’s no free lunch in finance, so everything that has a benefit also has a drawback. In this case, the drawback to cumulative (vs straight) will be a higher market price, which means a lower overall yield.