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

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

What is the difference between coupon rate and yield to maturity?

The coupon rate and yield to maturity for a bond will be the same if the bond's purchase price is identical to its par value. Par value is a bond's face value. YTM estimates the total amount that an investor can earn through maturity, under certain conditions. A bond bought at a discount from par will have a YTM that's higher than the coupon rate. ...

What is the difference between coupon rate and YTM?

Coupon rate is the interest that you receive throughout the tenure of a bond investment. YTM is the percentage rate of return which is calculated by assuming that you will hold the bond until maturity. To calculate the coupon rate, you must divide the coupon payment by the face value of the bond. ...

What is yield to maturity (YTM) & coupon rate?

The yield to maturity (YTM) is the estimated annual rate of return for a bond assuming that the investor holds the asset until its maturity date. The coupon rate is the earnings an investor can expect to receive from holding a particular bond. To complicate things the coupon rate is also known as the yield from the fixed-income product. ...

What does YTM mean on a bond?

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 value and how many payments remain. ...

Do market interest rates affect YTM?

Market interest rates do not affect the coupon rate as it is fixed by the issuer even before the bond is issued. On the other hand, YTM is the total annual return from the bond. It includes the regular coupon payments and the capital gains on the bond.. The yield from a bond fluctuates based on the market interest rates. ...

What does YTM mean?

YTM estimates the total amount that an investor can earn through maturity, under certain conditions. A bond bought at a discount from par will have a YTM that's higher than the coupon rate. A bond bought at a premium to par will have a YTM that's lower than the coupon rate. ...