What is the difference between coupon rate and YTM forbonds?

What is the difference between coupon rate and YTM for bonds?

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Expert Solution

Bond Price:
It refers to the sum of the present values of all likely coupon payments plus the present value of the par value at maturity. There is inverse relation between Bond price and YTM ( Discount rate ) and Direct relation between Cash flow ( Coupon/ maturity Value ) and bond Price.

Price of Bond = PV of CFs from it.

Coupon Rate is the Int rate provided to bond holders.

Coupon amount = Face Value * CouponRate

YTM :

YTM is the rate at which PV of Cash inflows are equal to Bond price when the bond is held till maturity. Yield to maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield but is expressed as an annual rate.

YTM is the discount Rate, at which Cash flows are discounted to find the price of bond.

jeff jeffy answered 1 year ago

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