... yields to maturity against the time to maturity. The Yield to Maturity is a discount rate that equates the cashflows to be received from a bond to the current market price of the bond. It indicates the cashflows that the investor would realize by holding the bond to maturity. These cashflows, expressed as the return of the investment are made up by the coupon payments, the change in capital value of the investment and the compound interest. For a bond paying semi-annually, the yield to maturity is calculated by computing the periodic interest rate, y, where: P = price of bond C = semi-annual coupon interest (dollars) M = maturity value (dollars) n = number of periods (years * 2) At this point, we come against a complexity when calculating the yield to maturity of coupon paying bonds because of the multiple cashflows the bond pays. The complexity lies on the fact that interest rates are ...

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