Yield to Maturity

The yield to maturity (YTM ) reflects the return on investment earned at the current price if the bond is held to its maturity date and redeemed at par or we may define it in a manner that the YTM is the discount rate that equates the present value of future inflows from the bond equal to its present price . Whenever we are interested in buying a bond from the bond market the bond 's issuer , promises to pay back the principal (or par value ) when the loan is due (on the bond 's maturity

date . In this time lag issuer is committed to pay the interest in to compensate the use of money . The interest payment is made on coupon rate which is fixed

There is an inverse relationship between the coupon rates and the bond prices when

Interest rates rise , leads to increase in income , whereas the price of the bond declines

Interest rate decline , leads to declining income , whereas the price of the bond rises (Marcus , 2001

Also keeping one thing in to consideration is that the coupon is inversely related to duration because higher coupons lead to quicker recovery of the bond 's value , resulting in a shorter duration , relative to lower coupons . If coupon rate is market rate then it is favorable for issuer and if coupon rate is market rate then it is favorable for purchaser . The reason behind the variations in the coupon rates of various bonds is the market interest rate company...