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Yield to Maturity Yield to Maturity Yield to maturity (YTM) is the yield promised by the bondholder on the assumption that the bond will be held to maturity, that
Yield to Maturity In today's society one way that people look to make money is through investing. New investors in the stock market should become familiar with the
Yield To Maturity Running Head: YIELD TO MATURITY Yield to Maturity Paper Student Name University of Phoenix Online Yield to Maturity Paper There are many instruments
Yield to maturity Paper In the business world today, there are several markets venues to invest and turn a profit. One way that people invest to make money is stocks
raised questions about bonds that were purchased at 10% according to the broker had a yield of maturity of 9%, confusing the individual. Yield Of Maturity Factors
Submitted by chrishoward13 on April 18, 2007
Category: Business
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Running Head: YIELD TO MATURITY
Yield to Maturity Paper
Student Name
University of Phoenix Online
Yield to Maturity Paper
There are many instruments to invest money in. Deciding upon which one to use means that the investor needs to fully understand the ins and outs of each instrument. By understanding the different instruments the informed investor can then evaluate which one provides the best return on the investment and proceed accordingly. One type of investment option is a bond, which is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest at a later date, termed maturity (Wikipedia). The market value of a bond can change after it is issued, so understanding the factors that can influence the value can be crucial in making informed financial decisions. If a 10% bond has a 9% yield to maturity, what does that mean?
Yield to Maturity
Interest and yield to maturity are two terms commonly used to describe bonds. Interest is the price paid for borrowing money, generally expressed as a percentage of the amount borrowed paid in one year (Webster's). For example, a $1,000 bond with a 10% interest rate will yield $100 in interest (assuming a maturity date of 1 year and interest is paid at the maturity date). The yield to maturity is used to define the rate of return that an investor will receive if a long-term bond is held until its maturity date (Oglesby, 2007). The rate of return, also known as the discount rate, is influenced by three factors (Block, 2005):
1. the required real rate of return,
2. inflation premium, and
3. risk premium.
The real rate of return is also known as the financial "rent" that an investor charges for using the funds. The inflation premium is designed to compensate the investor for the effect of inflation eroding the value of their dollar. The risk premium is a compilation of the risks...
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