TYBAF SEM V SUB - FINANCIAL MGMT. & MCOM SEM II SUB-CORPORATE FIN., TOPIC - YIELD TO MATURITY Part 2

Описание: Hello students,

This topic include concept of YTM
part 1 Illustration -    • TYBAF SEM V SUB - FINANCIAL MGMT. & MCOM S...  
how to calculate the YTM by formula

YIELD TO MATURITY (YTM)

Yield to maturity (YTM) is the total return anticipated on a bond, if the bond is held until maturity. Yield to maturity is considered a long-term bond yield, but is expressed as an annual rate. In other words, it is the internal rate of return (IRR) of an investment in a bond, if the investor holds the bond until maturity and if all payments are made as scheduled.

Formula
I + (F-P)/n
YTM = --------------------
( F+P) / 2

Illustration 2

Calculate yield to maturity (YTM) of bond 'A’:
Annual Interest - 10%
Face Value - ₹100
Market price - ₹80
Life of bond - 10 years
If bond 'B' gives 16% YTM, which is better to invest?

Solution –

I = Annual interest payment = 10% of FV = 100*10% = 10

F = Redemption value of the bond = Rs. 100

P = Current Market price of the bond/Purchase price Rs.80

n = Years to maturity = 10 years

#YTM
#Redemption value
#market price
#Maturity period
#interest