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24 C AFME Calculation of YTM
What does YTM stand for in bond valuation?
YTM stands for Yield to Maturity, which is the total return anticipated on a bond if held until it matures, expressed as an annual rate.
What is the approximate YTM formula used for quick estimation?
YTM ≈ (Annual Coupon + Capital Gain per Year) / Average Price
How is YTM different from the coupon rate of a bond?
The coupon rate is the fixed annual interest paid on the face value, while YTM accounts for coupon payments, capital gain or loss, and the time value of money over the bond's remaining life.
What does 'capital gain per year' represent in the approximate YTM formula?
Difference between face value and purchase price divided by years to maturity
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