# Yield to Maturity

 Revision as of 18:22, August 2, 2009 (edit)Moicetheman - Sr. Director (Talk | contribs) (→Yield to Maturity Terminology)← Previous diff Revision as of 19:45, August 2, 2009 (edit) (undo)68.180.29.93 (Talk) Next diff → Line 5: Line 5: ==Yield to Maturity Terminology== ==Yield to Maturity Terminology== *'''Face Value''', also known as the "par value", is the amount a bond holder will be paid when it matures. For example, a [[Zero-coupon bonds|zero coupon bond]] with a \$1000 face value and one year to maturity means that in exactly one year, the bond holder is entitled to \$1000 from the issuer. *'''Face Value''', also known as the "par value", is the amount a bond holder will be paid when it matures. For example, a [[Zero-coupon bonds|zero coupon bond]] with a \$1000 face value and one year to maturity means that in exactly one year, the bond holder is entitled to \$1000 from the issuer. - *'''[[Coupon payments|Coupon rate]]''' is the [[interest]] paid on a bond, expressed as a percentage of the face value of the bond. Most government issued bonds such as [[Treasury bonds|U.S. Treasury Bonds]] pay coupons semi-annually. If a bond does not ever pay any coupons between the issue date and maturity, it is called a [[Zero-coupon bonds|zero coupon bond]]. A short example helps explain how coupons work. Suppose you buy a 2 year bond, face value \$100 with a coupon rate of 5% paid semi-annually. Every six months you will receive a coupon payment of \$5.00 (5% of \$100). After 2 years, you receive \$5.00 as the final coupon, as well as the \$100 face value of the bond. + *'''[[Coupon payments|Coupon rate]]''' is the [[interest]] paid on a bond, expressed as a percentage of the face value of the bond. Most government issued bonds such as [[Treasury bonds|U.S. Treasury Bonds]] pay coupons semi-annually. If a bond does not ever pay any coupons between the issue date and maturity, it is called a [[Zero-coupon bonds|zero coupon bond]]. A short example helps explain how coupons work. Suppose you buy a 2 year bond, face value \$100 with a coupon rate of 5% paid semi-annually. Every six months you will receive a coupon payment of \$5.00 (5% of \$100), one every 6 months. After 2 years, you receive \$5.00 as the final coupon, as well as the \$100 face value of the bond.

## Revision as of 19:45, August 2, 2009

Yield to Maturity (YTM) refers to the expected rate of return a bondholder will receive if they hold a bond all the way until maturity while reinvesting all coupon payments at the bond yield. It is generally given in terms of Annual Percentage Rate (APR), and it is an estimation of future return, as the rate at which coupon payments can be reinvested at is unknown. However, for zero coupon bonds, the yield to maturity is exactly the rate of return you will receive since there are no coupon payments to reinvest.

## Yield to Maturity Terminology

• Face Value, also known as the "par value", is the amount a bond holder will be paid when it matures. For example, a zero coupon bond with a \$1000 face value and one year to maturity means that in exactly one year, the bond holder is entitled to \$1000 from the issuer.
• Coupon rate is the interest paid on a bond, expressed as a percentage of the face value of the bond. Most government issued bonds such as U.S. Treasury Bonds pay coupons semi-annually. If a bond does not ever pay any coupons between the issue date and maturity, it is called a zero coupon bond. A short example helps explain how coupons work. Suppose you buy a 2 year bond, face value \$100 with a coupon rate of 5% paid semi-annually. Every six months you will receive a coupon payment of \$5.00 (5% of \$100), one every 6 months. After 2 years, you receive \$5.00 as the final coupon, as well as the \$100 face value of the bond.