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Yield to Maturity (YTM) is thus the expected rate of return on a bond if it is held until its

maturity. The price of a bond is simply the sum of the present values of all its remaining cash
flows. Present value is calculated by discounting each cash flow at a rate; this rate is the YTM.
Thus YTM is the discount rate which equates the present value of the future cash flows
from a bond to its current market price. In other words, it is the internal rate of return on
the bond
Relationship between yield and price of a bond
If interest rates or market yields rise, the price of a bond falls. Conversely, if interest rates or
market yields decline, the price of the bond rises. In other words, the yield of a bond is inversely
related to its price. The relationship between yield to maturity and coupon rate of bond may be
stated as follows:
When the market price of the bond is less than the face value, i.e., the bond sells at a
discount, YTM > current yield > coupon yield.
When the market price of the bond is more than its face value, i.e., the bond sells at a
premium, coupon yield > current yield > YTM.
When the market price of the bond is equal to its face value, i.e., the bond sells at par,
YTM = current yield = coupon yield.

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