Explain the concept of yield to maturity based on purchasing a 10% bond but the broker kept repeating that it had a 9% yield to maturity?

batgirl2009

Okay... I think we covered this in economics but you should probably wait to get other answers too. i think that just means that if you wait until the specified time before you cash in your bond then it will have an annual interest return rate of 9%. Which in today's economy is GREAT. It would just depend on when you planned to cash the bond in. Once again... I learned this in a high school economics class and I'm only 16 but I got a 98% in the class.

ebaines

The yield to maturity is what you use to compare the return you can expect from one bond versus another. It takes into account what you pay for the bond, the annual income stream, and the payback when the bond matures to determining an equivalent annual percentage rate. A 10% bond would pay 10% of the face value of the bond. Your yield to maturity would be less than the stated 10% if you pay more than face value for the bond. For example, if you bought a $1000 10% bond on the open market for, say, $1100, you would receive $100 per year in interest (that's 10% of the face value), and at maturity get paid back $1000 from the issuer. So the yield to maturity for you is somewhat less than 10%.