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

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Bond & CD Prices, Rates, And Yields - Fidelity Investments

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Buyers can get around 5% on new CDs, so they'll only be willing to buy your bond at a discount. In this example, the price drops to 91, meaning they are willing to pay you $18,200 ($20,000 x …

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Yield To Maturity (YTM) - Overview, Formula, And Importance

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Up to 3.2% cash back · Yield to Maturity (YTM) – otherwise referred to as redemption or book yield – is the speculative rate of return or interest rate of a fixed-rate security. ... On this bond, …

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Yield To Maturity (YTM): What It Is And How It Works - Investopedia

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Mar 4, 2024 · Yield to maturity (YTM) is the total return expected on a bond if the bond is held until maturity. ... The annual interest rate must be greater than the coupon rate of 5%. …

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

What is the difference between YTM and coupon rate?

YTM is the total return expected on a bond if it's held until maturity. The coupon rate is the total amount the bond pays in income to the bondholder for as long as they hold it. The coupon rate is the interest paid annually on the bond's face value. A bond's YTM fluctuates over time. The coupon rate remains fixed. ...

What is a bond YTM & coupon rate?

Unlike stock investments, bond issuers promise to pay the holder the full face value once it matures. Bonds come with two metrics: YTM and coupon rate. YTM is the total return expected on a bond if it's held until maturity. The coupon rate is the total amount the bond pays in income to the bondholder for as long as they hold it. ...

What does YTM mean on a bond?

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 value and how many payments remain. ...

How do you calculate YTM on a discount bond?

A bond priced below par, called a discount bond, has a coupon rate lower than the realized interest rate. To calculate YTM on a bond priced below par, investors plug in various annual interest rates higher than the coupon rate to find a bond price close to the researched bond price. ...

What does YTM mean?

YTM estimates the total amount that an investor can earn through maturity, under certain conditions. A bond bought at a discount from par will have a YTM that's higher than the coupon rate. A bond bought at a premium to par will have a YTM that's lower than the coupon rate. ...

What is the difference between YTM and spot rate?

As the bond approaches maturity, its price in the market moves toward face value. The YTM is the annual rate of return (IRR) calculated as if the investor will hold the asset until maturity. The spot rate is the rate of return earned by a bond when it is bought and sold on the secondary market without collecting interest payments. ...