Differentiate between yield to maturity and current yield-00157
This subjective question is related to the book/course
vu bt301 Introduction to Biotechnology.
It can also be found in
vu bt301 Mid Term Solved Past Paper No. 3.
Yield To Maturity
The most useful measure of the return on holding a bond is called the yield to maturity (YTM).
This is the yield bondholders receive if they hold the bond to its maturity when the final principal payment is made
It can be calculated from the present value formula.
The value of i that solves this equation is the yield to maturity
If the price of the bond is $100, then the yield to maturity equals the coupon rate. Since the price rises as the yield falls, when the price is above $100, the yield to maturity must be below the coupon rate.
Current yield
Current yield is a commonly used, easy-to-compute measure of the proceeds the bondholder receives for making a loan.
It is the yearly coupon payment divided by the price.
The current yield measures that part of the return from buying the bond that arises solely from the coupon payments
