Yield 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 and think it would be valuable to read the information I have shared below. It will help you understand the terminology and calculations behind your investments. Understand each concept with will you improve communication with your broker and help you make good decisions with your money. Bonds
You have purchased a bond, defined as “an annuity stream of interest payments and a $1,000 principal payment at maturity” (Block, 2005). The issuer has agreed to repay you the principal and interest at a later date, also known as maturity. “The rate of return on a bond if it is held until the maturity” (fxwords, 2007). As you know, the market can influence the value of bonds due the rising and falling performance of the economy. Understanding the power of valuation can help ensure you make the right financial decision that yield the greatest return in investment. “The value of a financial asset is based in the concept of the present value of the future cash flows” (Block, 2005). Yield to Maturity
Two important terms you will want to become familiar with are interest and yield to maturity. Interest is the price paid to borrow an amount of money for one year and is expressed as a percentage. “The yield to maturity is used to define the rate of return that an investor will receive if a long-term bond is held until its maturity date” (Oglesby, 2007). According to Block, three factors influence the rate of return on a bond. The real rate of return is similar to rent paid for an apartment. Charges you, the investor receive the...