Yield to Maturity

Yield to Maturity

In economics yield to mature is the internal rate of return from the flows of cash of fixed income security , especially from bonds . Yield is paid if the bonds or other securities are to be help until their maturity . Simply saying , yield to maturity is a measurement of the return from the bonds . It is necessary to note that yield to maturity gives investors the opportunity to calculate the fair value of financial instruments . Yield to maturity applies exactly to a zero coupon bond The reason is that this

bond has no interest to be reinvested (Yield to Maturity : Definition

It is apparent that calculation of yield to maturity is the same as the calculation of the rate of return

If the current yield of the bond is less that its yield to maturity then the bond will be sold at a discount

If the current yield of the bond is more that yield to maturity , then the bond will be sold at a premium

If the current yield of the bond equals its yield to maturity , then such bond will be sold at a par (Yield to Maturity : Definition

When the bond is issued and is being traded in the security market , the only varying thing is bond 's price . If a person buys such bond , his yield to maturity will increase on his investments . It is a matter of fact that different bonds have different characteristics and therefore there are several possible variants of yield to maturity

Yield to call means that the bond is callable and can be purchased by the issuer even before maturity takes place . When the bond is callable the market tends also to look to the yield to call . But market may assume that bond can be possible called . On yield to call the cash flow is shortened ( Yield to Maturity

Yield to put means the same as yield to call , but the main difference is that the holder of the bond wants to sell the bond back to its issuer at a set price and only on specified date

Yield to worst means that the bond is callable , puttable ' and has other additional features . It is known that yield to worst is the lowest of yield to maturity (Yield to Maturity

Yield to maturity assumes that all interests and dividends are reinvested . It takes also into account losses and gains in case of difference between the purchase and redemption price . Economists say that yield to maturity is a projection of future performance , because yield to maturity has to assume a reinvestment and the rate of yield to maturity itself . In other words , yield to maturity an implicit function that can only be evaluated by the method of successive approximations . To achieve the quoted yield to maturity is easy when a zero coupon bond is to be help until maturity . Yield to maturity is mostly quoted in terms of bond-equivalent yield (Yield to Maturity

For example , let 's consider a...