Topic 4 - Bonds ((i) Yield to maturity (YTM))

Question 1

Yield to Maturity

Answer 1

The internal rate of return of bonds:

• Makes the present value of all future cash flows equal to the current market price of the bond.
• YTM is the average annual rate of return that you will earn if you buy the bond at the current market price and hold it to maturity.
• YTM calculation assumes bond is held to maturity, and all coupons can be re-invested at an interest rate equal to YTM.