Yield to Maturity: Bond Investment Returns
Yield to maturity (YTM) is a key metric in bond investing that compares different bonds and helps investors understand how changing market conditions could affect their portfolio. YTM is expressed as an annualized rate regardless of a bond's maturity date.Formula
YTM = (C + M(1 + r)^n)/[(1+r)^n - 1]How do I calculate the yield to maturity?
It is important to understand how to calculate Yield to maturity (YTM) when considering investing in bonds. YTM is the total return on a bond when it matures and is also known as book yield or redemption yield. The formula for YTM calculation is as follows: YTM = (C + M(1 + r)^n)/[(1+r)^n - 1], where C is the coupon payment, M is the face value of the bond, r is the required rate of return, and n is the number of years until maturity. To calculate YTM, one can use either Sourcetable.
What is yield to maturity (YTM)?
Yield to maturity is the rate of return that an investor will receive if a bond is held until the bond's maturity date. Yield to maturity is expressed as a yearly rate.
What is the difference between yield to maturity and coupon rate?
The coupon rate is the percentage rate of interest paid on a bond's face value, while yield to maturity is the rate of return that an investor will receive if the bond is held until the bond's maturity date.
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Key Points
How do I calculate yield to maturity?
YTM = (C + M(1 + r)^n)/[(1+r)^n - 1]
Yield to Maturity
Yield to maturity (YTM) is an annualized rate of return on a bond that takes into account both the current interest rate and the bond's maturity date. YTM enables investors to compare different bonds and is an approximation rather than a precise figure.
Annualized Rate
YTM is expressed as an annualized rate regardless of the bond's maturity date. This makes it a useful tool for investors to compare bonds of different maturities and enables a more accurate comparison of different bonds.
Comparing Bonds
The yield to maturity is used to compare different bonds, enabling investors to compare bonds with different maturities and interest rates. YTM enables investors to assess the potential of different investments, helping them make more informed decisions.
Approximation
The yield to maturity is an approximation rather than a precise figure. This means that the actual return on an investment could vary from the predicted yield to maturity. It is important for investors to be aware of this when assessing the potential of different investments.
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