Accrual bond Auction rate security Callable bond Commercial paper Consol Contingent convertible bond Convertible bond Exchangeable bond Extendible bond Fixed rate bond Floating rate note High-yield debt Inflation-indexed bond Inverse floating rate note Perpetual bond Puttable bond Reverse convertible securities Zero-coupon bond.
Yield to Maturity (YTM)
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Forwards Options Spot market Swaps. Participants Regulation Clearing. Banks and banking Finance corporate personal public. Therefore, building the factory would be a good idea. Yield to maturity The biggest difference between IRR and yield to maturity is that the latter is talking about investments that have already been made.
Yield to maturity, or YTM, is used to calculate an investment's usually a bond or other fixed income security yield based on its current market price.
When is a bond's coupon rate and yield to maturity the same?
A precise calculation of YTM is rather complex, as it assumes that all coupon payments are reinvested at the same rate as the current yield, and takes into account the present value of the bond. However, YTM for an investment can be approximated rather easily by combining the coupon yield with the difference between the market price and the face value of the bond using the following formula.
Where C is the coupon interest payment, F is the face value of the bond, P is the market price of the bond, and "n" is the number of years to maturity. We can calculate the YTM as follows:. In other words, because we bought the bond for a discount, our effective YTM is slightly higher than the bond's coupon interest rate.
If we had paid a premium, we would expect the opposite to be true. If you're reading this because you want to learn more about stocks and how to invest, check out The Motley Fool's Broker Center and get started today.
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