Yield to Maturity vs. Coupon Rate: What's the Difference?

A bond's yield to maturity (YTM) is the percentage rate of return for a bond, assuming that the investor holds the asset until its maturity date and receives all its remaining coupon payments and return of the principal (par value) at maturity. A bond's yield to maturity rises or falls depending on its market … See more

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FAQs about Yield to Maturity vs. Coupon Rate: What's the Difference? Coupon?

What is yield to maturity vs coupon rate?

Yield to Maturity vs. Coupon Rate: An Overview A bond's yield to maturity (YTM) is the percentage rate of return for a bond, assuming that the investor holds the asset until its maturity date and receives all its remaining coupon payments and return of the principal (par value) at maturity. A bond's... ...

Do discount bonds have a higher yield to maturity than coupon rates?

Thus, bonds trading at below par value, or discount bonds, have a yield to maturity that is higher than the actual coupon rate. Bonds trading above par value, or premium bonds, have a yield to maturity lower than the coupon rate. ...

How is yield to maturity calculated?

Yield to maturity (YTM) is calculated by taking into account the bond's current market price, par value, coupon interest rate, and term to maturity. The calculation assumes that all coupon payments are reinvested at the same rate as the bond's current yield. ...

How is Yield to Maturity (YTM) calculated?

Yield to Maturity (YTM) is calculated as a bond's internal rate of return if held to maturity. The calculation assumes all coupon or interest payments can be reinvested at the same rate of return as the bond. Bonds can be priced at a discount, at par, or a premium, but at par, the bond's interest rate equals its coupon rate. ...

What are coupon rates and yields?

Coupon rates are the annual interest rates of a bond, which affect the market price of the bond. This, in turn, impacts the yield of the bond, which is the amount of return generated. ...

How does the yield to maturity of a bond change?

The yield to maturity (YTM) of a bond inversely changes as the price of the bond changes. As the price increases, the yield decreases, and vice versa. Though bonds may be issued with variable rates tied to SOFR (which replaced LIBOR), most bonds are issued with a fixed rate, often causing the coupon rate and yield to differ. ...