Yield to maturity Free Essay, Term Paper and Book Report
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 bonds 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
The calculation of YTM is identical to the calculation of internal rate of return.
If a bonds current yield is less than its YTM, then the bond is selling at a discount.
If a bonds current yield is more than its YTM, then the bond is selling at a premium.
If a bonds current yield is equal to its YTM, then the bond is selling at par.
The yield to maturity, or discount rate, is the rate of return required by the bondholders. The
bondholder, or any investor, will allow three factors to influence his or her required rate of return. (Block,
Word Count: 825
Page Count: 3.3 (250 words a page / double spaced)
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