Explain Yield to Maturity (YTM), its calculation, and the procedure used to value bonds that pay interest semiannually

Finance Aug 12, 2020

Explain Yield to Maturity (YTM), its calculation, and the procedure used to value bonds that pay interest semiannually.

Expert Solution

YTM i.e yield to maturity is total return that is expected from the bond if bond is held till matuiry. YTM is long term yiel but it is expressed as annula percentage. YTM is calculated as below

YTM = Interest + (Face value - Market selling price)/n / ( Face value + Market selling price)/2

Here Interest = Face value x coupon rate

n = no. of coupon payments

When interest is paid semiannually , than no of time interest paid is doubled , hence n is multiplied by 2 and coupon rate is dividend by 2, rest formula remains the same

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