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Yield to maturity - Essay and Term Paper
Yield to maturity (YTM) is the yield promised by the bondholder on the assumption that the bond will be
held to maturity, that all coupon and principal payments will be made and coupon payments are
reinvested at the bond’s promised yield at the same rate as invested. The YTM s a measurement of the
return of the bond. This technique in theory allows investors to calculate the fair value of different financial
instruments.
The calculation of YTM is identical to the calculation of internal rate of return.
• If a bond’s current yield is less than its YTM, then the bond is selling at a discount.
• If a bond’s current yield is more than its YTM, then the bond is selling at a premium.
• If a bond’s current yield is equal to its YTM, then the bond is selling at par.
Influencing Factors
“The yield to maturity, or discount rate, is the rate of return required by th......
Total Word Count: 825
Page Count: 3.3 (250 words a page / double spaced)
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