What is one limitation of the flat yield method?

The flat yield method is primarily concerned with straightforward calculations of yield based on the nominal cash flows of a bond without taking into consideration when those cash flows occur. This means that while it may provide an easy way to compare yields of different investments, it does not capture the nuances of timing, which can significantly impact the overall return of the investment.

The limitation lies in the fact that cash flows received earlier are typically more valuable than those received later due to the time value of money. By ignoring the timing of cash flows, the flat yield method can lead to misleading conclusions about an investment's attractiveness compared to other methods that factor in when cash flows occur, such as yield to maturity or internal rate of return calculations. Thus, while it simplifies the analysis, it overlooks a critical aspect of investment performance.