Yield to Maturity vs. Coupon Rate: What's the Difference?

A bond's yield to maturity (YTM) is the percentage rate of return for a bond, assuming that the investor holds the asset until its maturity date and receives all its remaining coupon payments and return of the principal (par value) at maturity. A bond's yield to maturity rises or falls depending on its market … See more

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FAQs about Yield to Maturity vs. Coupon Rate: What's the Difference? Coupon?

What is the difference between coupon rate and yield to maturity?

To grasp the key differences between coupon rate and yield to maturity, go through the table below: Coupon rate is the interest that you receive throughout the tenure of a bond investment. YTM is the percentage rate of return which is calculated by assuming that you will hold the bond until maturity. ...

What is the difference between YTM and coupon rate?

This yield changes as the value of the bond changes, thus giving the bond's yield to maturity (YTM). The coupon rate is the interest rate paid on a bond by its issuer for the term of the security. What are the Pros and Cons of Paying Off a Mortgage Early? ...

What does YTM mean on a bond?

How do coupon rates differ from yields?

Coupon rates are distinct from yield, which is subject to market fluctuations. If the price of a bond increases or decreases from face value, the yield may change, even though the coupon rate remains constant. ...

Does the coupon rate fluctuate throughout the year?

The coupon rate remains fixed throughout the year, and the YTM fluctuates based on various factors, including the current market price of the bond and the remaining years until maturity. Can the coupon rate be higher than the yield to maturity? ...

What is YTM & how does it work?

Unlike the coupon rate, which is a fixed percentage, YTM is a dynamic figure that reflects the bond’s total return, taking into account the bond’s current market price, its face value, the coupon interest payments, and the time remaining until maturity. This calculation provides a more holistic view of the bond’s potential profitability. ...