ECONOMICS
FINANCIAL MARKETS
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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yield
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par value
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return
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interest
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Detailed explanation-1: -Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield but is expressed as an annual rate.
Detailed explanation-2: -Investors who hold a bond to maturity (when it becomes due) get back the face value or “par value” of the bond.
Detailed explanation-3: -Without calculations: When the YTM increases, the price of the bond decreases. Without calculations: When the YTM decreases, the price of the bond increases.
Detailed explanation-4: -The Yield to maturity (YTM) refers to the expected annual rate of return on a debt security if it is held till the maturity date. It is the rate of return the bondholder can expect if: (I) the bond is held till the maturity date.
Detailed explanation-5: -Examples rate of return calculation for bonds The calculation of the rate of return is the interest plus appreciation, divided by original bond price – expressed as a percentage. The rate of return after one year is therefore 25% ($5000 plus $20, 000, divided by $100, 000, multiplied by 100).