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Concept of Yield to Maturity (YTM) | Report

This is a lecture note for the course Master in Business Administration, specifically for the topic of Bond Valuation and the Structure of Interest Rates. It covers the concept of capital market efficiency, including operational efficiency and informational efficiency.

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Added on  2022-08-12

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This Week's Topic You need to discuss about the Discussion Question 8.4 in page 262: Define "yield to maturity". Why is it important? I am attaching the Lecture Notes and Powerpoint slides to utilize when answering the question along with the expert's knowledge in the subject. Please utilize the notes & slides as the Professor will be looking into that more acutely.

Concept of Yield to Maturity (YTM) | Report

This is a lecture note for the course Master in Business Administration, specifically for the topic of Bond Valuation and the Structure of Interest Rates. It covers the concept of capital market efficiency, including operational efficiency and informational efficiency.

   Added on 2022-08-12

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Concept of Yield to Maturity (YTM) | Report_1
1HEALTH CARE
Yield to maturity (YTM) is defined as the rate that makes the present value of cash flows
of a bond equal to the price of the bond. Thus, it is reflective rate of the discount rate that
makes present value of coupon and payments equivalent to the price of the bond. Briefly, it
can be said that YTM is total expected return on a bond if it is held until maturation. The
value of YTM changes every day as per the change in interest rates. The main underlying
assumptions involved in YTM measurement is that the bond is held till maturity, all
payments are made on time and it does not considers allowance for the tax that is paid by the
investor on return (Pilbeam, 2018).
YTM is important for a purchaser as it gives them idea about the rate of return they are
likely to get if they buy a bond and continue with it till maturity. In the field of finance, YTM
is regarded as an important investment tool as it is reflective of security rate while purchasing
a bond. Calculation of YTM value can help them to decide whether to invest in debt
securities or not. The following formula helps in the calculation of YTM rate:
In the above formula, C stands for interest payment, FV denotes face value of the
security, PV denotes present value or price of the security and t indicates the times to reach
maturity. The aim of the formula is to find to determine the YTM values based on the current
and updated market price (Deutsch & Beinker, 2019).
Concept of Yield to Maturity (YTM) | Report_2

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