Yield to Maturity YTM Homework Help
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Total return anticipated on a bond is yield to maturity if it’s held till maturity. This includes all coupon and principal amount paid on schedule towards the purchase of bond on existing market price.Yield to maturity YTM assignment help is a guided manual from helpmeinhomework to ease out the intricate calculations involved. It aims to assist you in writing and to learn this particular finance topic.
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Yield to Maturity YTM homework help breaks down complex calculations associated with this subject. It is considered as long term yield on bond expressed as an annual rate.Certain assumptions make way for accuracy of calculations.
Underlying assumptions behind this theory
- You hold bond until maturity.
- You clear all coupons and payments of principal amount as per schedule.
- You reinvest all coupons at an interest rate equal to yield to maturity.
- The yield considers bonds’ current market price, face value, coupon interest rate and term of maturity.
These assumptions enable us to compare various bonds with different terms and coupons and select the one best suited for our investment.
Coupon Rate and Yield to maturity is not a mutually exclusive concept. If a bonds’ coupon rate is less than its yield to maturity, a bond is sold at a discount. Similarly, with coupon rate greater than yield to maturity, the bond is selling at a premium.In cases where bonds’ coupon rate is equivalent to yield to maturity, the bond is selling at par.
Yield to Maturity YTM homework help brings forth the variants that form the foundation of the calculation.
- Yield to call: If the issuer repurchases the bond before maturity, the cash flow is shortened.
- Yield to put: If the bond holder retains the authority to sell it back to the issuer on a specified date at a pre-decided price.
- Yield to worst: A bond that you can sell, repurchase, exchange, the yield to worst is the lowest of yield to maturity.
Considering the underlying assumptions and variants, the formula for yield to maturity for zero coupon bonds are found as:
Yield to maturity (YTM) = time period √(face value)/ (present value) – 1
Limitation of yield to maturity
While the calculations determine whether buying a bond is profitable or not, it is subject to some serious flaws.
- The yield does not take into consideration the tax paid by the investor on the return.
- The yield does not take into account the brokerage or the dealing cost of trading of the bond.
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