Learn More about Interest Rate and Yield to Maturity
If you are studying finance, interest rate and yield maturity are some of the common terms you will come across. Of course, you will also have to deal with assignments and homework on the concerned topics. If you require some more financial mathematics: interest rate and yield to maturity homework help, you can always seek the assistance of our experts at myhomeworkhelp.com.
Defining yield to maturity
Yield to maturity can be defined as the total anticipated return on a bond until it matures, i.e., if the bond is held until the end of its lifetime. Although considered to be a long-term bond yield, yield to maturity is expressed in the form of the annual rate. Putting it in a different way, it is a bond investment’s internal rate of return in case the investor decides on holding the bond till it matures and if scheduled payments are made.
Calculation of yield to maturity
When you want some more financial mathematics: interest rate and yield to maturity assignment help, you would obviously want more than just the definition of the terms. Your assignment may also involve certain calculations to find out the yield to maturity.
While calculating yield to maturity it is assumed that reinvestment of all coupon payments is done at the same rate as the present yield of the bond. Also, the current market price, coupon interest rates, terms of maturity and par value of the bond is also taken into account. Yield to maturity is an accurate, although a bit complex, calculation of the return of the bond. It is helpful for investors as it allows comparison of bonds with different coupons and maturities.
Further breaking down yield to maturity
Yield to maturity is often also called redemption yield or book yield. Although it represents a bond’s annual rate of return, coupon payments are generally made on a semi-annually basis. This is why the calculation of yield to maturity is also often done semiannually. To know exactly how the calculation is done, you can rely on our some more financial mathematics: interest rate and yield to maturity homework help.
Since yield to maturity is basically the interest rate, one would earn upon reinvestment of every coupon payment from the bond at a particular interest rate till the maturity of the bond, the future cash flow’s present value is equal to the market price of the bond. Yield to maturity might be similar to current yield. However it doesn’t take into account the present value of future coupon payment of the bond.
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