Bonds & YTM

• • Price-Yield Relationship:
  • YTM > Coupon Rate: Discount bond.
  • YTM = Coupon Rate: Par bond.
  • YTM < Coupon Rate: Premium bond.
• • YTM Definition: The discount rate equating a bond's price to the present value of its cash flows.
• • YTM Assumption: Assumes reinvestment of coupons at the same rate.
• • Zero-Coupon Bonds:
  • Always sold at a discount.
  • YTM = Spot Rate for that maturity.