Hi,
I am trying to understand the Yield to Maturity of a bond. Conceptually I understand it. But I cannot figure out how the following example works (I found this example on a reputable - as far as I know - site).
The purchase price of a bond is $900. Maturity 5 years. Face amount $1000 (I think it is also called par). Coupon is 2%.
So the bond earns (by years)
Yr 1 Yr 2 Yr 3 Yr 4 Yr 5
$20 $20 $20 $20 $1020 (coupon + principle)
then they say that the Yield to Maturity of this bond is 4.27%.
How do they calculate the 4.27%?
"The creative process is nothing but a series of crises." Isaac Bashevis Singer
"My experience is that as soon as people are old enough to know better, they don't know anything at all." Oscar Wilde
"If a nation values anything more than freedom, it will lose its freedom; and the irony of it is that if it is comfort or money that it values more, it will lose that too." W.Somerset Maugham
