Relationship Between Yield To Maturity and Coupon Rate
The concept of current yield is closely related to other bond concepts, including yield to maturity, and coupon yield. When a bond sells at;
- a discount: YTM > current yield > coupon yield
- a premium: coupon yield > current yield > YTM
- par: YTM = current yield = coupon yield.
Current Yield = Total Yield - Capital Gains Yield
The current yield is the annual payment divided by the price. Algebraically expressed as Y = R/P, where Y is yield, R is the annual payment, and P represents price. This creation shows the fine line between high and low returns over more than one period. A high yield will produce a relative payment and a low yield will do the same. When the yields of several periods are compared a higher yield will show a higher payment with less risk associated. This equates to investors expecting a higher yield over a length of investing. The possibility of market risks are ignored.
Read more about this topic: Current Yield
Famous quotes containing the words relationship between, relationship, yield, maturity and/or rate:
“The proper aim of education is to promote significant learning. Significant learning entails development. Development means successively asking broader and deeper questions of the relationship between oneself and the world. This is as true for first graders as graduate students, for fledging artists as graying accountants.”
—Laurent A. Daloz (20th century)
“Strange and predatory and truly dangerous, car thieves and muggers—they seem to jeopardize all our cherished concepts, even our self-esteem, our property rights, our powers of love, our laws and pleasures. The only relationship we seem to have with them is scorn or bewilderment, but they belong somewhere on the dark prairies of a country that is in the throes of self-discovery.”
—John Cheever (1912–1982)
“The important question is not, what will yield to man a few scattered pleasures, but what will render his life happy on the whole amount.”
—Joseph Addison (1672–1719)
“When a man reaches his maturity in understanding and in years, the feeling comes over him that his father was wrong to beget him.”
—Friedrich Nietzsche (1844–1900)
“If you could choose your parents,... we would rather have a mother who felt a sense of guilt—at any rate who felt responsible, and felt that if things went wrong it was probably her fault—we’d rather have that than a mother who immediately turned to an outside thing to explain everything, and said it was due to the thunderstorm last night or some quite outside phenomenon and didn’t take responsibility for anything.”
—D.W. Winnicott (20th century)