The formula to calculate the Yield to Maturity (YTM) is:
\[ \text{YTM} = \left[ \frac{C + \left(\frac{F - P}{n}\right)}{\frac{F + P}{2}} \right] \times 100 \]
Where:
Rate to Yield, often referred to as Yield to Maturity (YTM), is a financial concept that calculates the total annual return an investor would receive if a bond or other fixed-income investment is held until maturity. It takes into account both the interest payments received periodically and any capital gain or loss that would be realized upon maturity or sale. This rate is expressed as an annual percentage and is used by investors to compare the potential returns of different fixed-income investments.
Let's assume the following values:
Using the formula to calculate the Yield to Maturity (YTM):
\[ \text{YTM} = \left[ \frac{50 + \left(\frac{1000 - 950}{10}\right)}{\frac{1000 + 950}{2}} \right] \times 100 = \left[ \frac{50 + 5}{975} \right] \times 100 \approx 5.64\% \]
The Yield to Maturity (YTM) is approximately 5.64%.
