![]() ![]() ![]() The yield's relationship with price can be summarized as follows: When price goes up, yield goes down and vice versa. YTM is a yield calculation that enables you to compare bonds with different maturities and coupons. any gain (if you purchased at a discount) or loss (if you purchased at a premium).all the interest payments you'll receive (and assumes that you'll reinvest the interest payment at the same rate as the current yield on the bond).When bond investors refer to yield, they're usually referring to yield to maturity (YTM). Of course, in real life, things tend to be more complicated. In our example, the bond holder continues to receive $100 a year. Regardless of the market price of a bond, the coupon remains the same. If the price of the bond in the market is $1,200, it's selling above face value, or at a premium. If the price of the bond in the market is $800, it's selling under face value or at a discount. Why? Because bond prices change on a daily basis of prevailing interest rates. If, however, you decide to sell it on the market, you won't get $1,000. The issuer pays you $100 a year for 10 years, and then pays you back the $1,000 on the scheduled date. Here's an example: Let's say you buy a bond at its $1,000 par value with a 10% coupon. When the price changes, so does the yield. The simplest version of yield is calculated by the following formula: Yield is a figure that shows the return you get on a bond. ![]() Strange for an investment with a fixed face value, interest rateĪnd maturity, isn't it? That's because bonds can be sold before maturity in the open market, where the price can fluctuate. Many new investors are surprised to learn that a bond's price and yield, just like that of any other publicly-traded security, change on a daily basis. ![]()
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