# T-note returns from T-note yields ... derivation of Damodaran's formula

Damodaran's historical data on 10-year T-note returns (found here) uses the following formula to calculate the 1-period total return on a T-note ($R_1$) given the 10-year constant maturity yield-to-maturity in the prior year ($Y_0$) and the current year ($Y_1$).

$R_1=(Y_0*\frac{1-(1+Y_1)^{-10}}{Y_1}+\frac{1}{(1+Y_1)^{10}})-1+Y_0$

Where can I find a derivation or description of this formula? It seems very odd to me that the only two data points I would need to calculate the total return to a T-note are the beginning and ending yield-to-maturities.

• Not sure how accurate that formula is, but over short intervals all you really need is the current yield and the previous period's yield.
– John
Aug 12, 2012 at 13:36
• I get that you can do that for a given instrument, but the index isn't a given instrument. So you have to make assumptions about what year 11 looks like, etc. Aug 13, 2012 at 3:00
• I think the assumption is that the index is continually rebalanced into a hypothetical 10-year security.
– John
Aug 13, 2012 at 14:46