How is YTM different from the coupon rate?

Coupon rate is the stated annual interest as a percentage of par value. YTM is the total annualized return if held to maturity, including the price discount or premium. They differ whenever the bond trades away from par.

If a bond is priced at $950 with 5% coupon and 5 years to maturity, what is YTM?

Approximately 6.1%. The $50/year coupon plus $50 principal gain over 5 years yields more than the coupon rate alone.

What is the relationship between bond prices and yields?

Inverse relationship: when interest rates rise, existing bond prices fall to make their yield competitive. When rates fall, prices rise. Duration measures this interest rate sensitivity.

Bond Yield to Maturity Calculator

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Frequently Asked Questions

How is YTM different from the coupon rate?

If a bond is priced at $950 with 5% coupon and 5 years to maturity, what is YTM?

What is the relationship between bond prices and yields?