Yield to Maturity A coworker of mine was discussing her investments with a broker. She was confused because she had purchased a 10% bond but the broker kept repeating that it had a 9% yield to maturity. The objective of this paper is to explain the concept of yield to maturity and try to clarify the difference between the 2 terms. The yield to maturity (YTM), or discount rate, is the rate of return required by bondholders. The price, or current value, of a bond is equal to the present value of interest payments (It) over the life of the bond plus the present value of the principal payment (Pn) at maturity. The discount rate used in the analytical process is the yield to maturity (Y). The yield to maturity (required rate of return) is determined in the marketplace by factors such as the real rate of return, an inflation premium, and a risk premium. An example for calculating the present value, or price, of the bond is when the required rate of return, or yield to maturity is 12 percent .The new price of the bond, as computed below, is $850.90. The principal value is $1000. Present....

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