Yield to Maturity
Kindra Hill
University of Phoenix
MMPBL/503 Wk 5
June 27, 2010

Scenario: A coworker of yours was discussing her investments with a broker. Your coworker was confused because she had purchased a 10% bond but the broker kept repeating that it had a 9% yield to maturity. Explain the concept of yield to maturity. This paper will explain the concept of yield to maturity in reference to bonds. It will allow for understanding of the difference in the stated rate of the bond and the yield to maturity. Explanation of this concept will allow the coworker in the scenario to understand what the broker is meaning by his statements. Yield to maturity (YTM) is the amount an investor can expect to receive from a long term bond if held to maturity and all coupons are reinvested at the same rate back into the bond. “YTM is considered a long-term bond yield expressed as an annual rate” (Investopedia, 2010). Redemption value, time to maturity, time between interest payments and coupon yield are all taken into consideration when calculation the YTM of a bond, per the Dictionary of Finance and Accounting (2006). A coupon is the interest rate stated on a bond when it is issued and is typically paid semi-annually (Investopedia, 2010). According to the Dictionary of Finance and Accounting terms, calculation of YTM is the same as calculation of IRR, and it is calculated by trial and error to find the discount rate at which the present value of the future bond payments would equal the present price of the bond (2006). This requires the use of a business calculator. The formula used to calculate the YTM, according to Block & Hirt (2005) is: [pic][pic]

The advantage of calculation of YTM is that it allows an investor to compare options easily. Keep in mind when making an investment in a bond is that the interest rate may change due to external forces, but the YTM is set at the time of purchase and doesn’t change as long...

...Running Head: Yield to MaturityYield to Maturity Paper
University of Phoenix
Introduction to Finance and Accounting
I received your email yesterday regarding an issue you had with your broker over an investment. I understand your frustration and confusion; after all, it is your money! Unfortunately, I will not be able to meet with you this weekend because I am going out of town to visit my family. I understand your situation...

...Running head: YIELD TO MATURITY PAPER
Yield to Maturity Paper
University of Phoenix
Yield to maturity (YTM) is a financial term that is not a concept that the everyday person comes in contact with. The definition of Yield to maturity according to Block and Hirt is “The yield to maturity, or discount rate, is the rate of return required by...

...Market
3
3
All about Yield curve
5
4
Behavior of bond yields- Case by Case basis
7
5
Data Calculations and Conclusions
11
6
Literature Review
15
7
References
17
Abstract
This paper examines the determinants of the bond yields in India using daily data from Feb 20, 2013 through March 30, 2014, to be precise 300 working days. The analysis covers Treasury...

...Chapter 10
Bond Prices and Yields
1.
a. Catastrophe bond: Typically issued by an insurance company. They are similar to an insurance policy in that the investor receives coupons and par value, but takes a loss in part or all of the principal if a major insurance claim is filed against the issuer. This is provided in exchange for higher than normal coupons.
b. Eurobond: They are bonds issued in the currency of one country but sold in other national markets.
c. Zero-coupon...

... Maturity
Looking at the word maturity from society's perspective, what it means is to become an adult, to be a man or a woman instead of a boy or a girl, or to simply be old enough to attend the screening of an R-rated movie. But the actual meaning of being mature goes beyond turning 18 years old. Becoming Mature means gaining the ability to manage your self, knowing how to handle certain situations and thinking of the consequences of your actions. My mother...

...years remaining to maturity. Interest is paid annually, the bonds have a $1,000 par value, and the coupon interest rate is 8%. The bonds have a yield to maturity of 9%. What is the current market price of these bonds?
F= par value
C= maturity value
R= coupon rate per coupon payment period
I= effective interest rate per coupon payment period
N= number of coupon paynments
F= 1000 so C should = 1000 r= .08 i= .09 n= 12
The...

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