What is the difference between YTC, YTM, and Coupon?
YTC (Yield to Call): YTC refers to the yield an investor would receive if a callable bond is held until its call date, considering the bond's market price and the call price. Callable bonds give the issuer the option to redeem the bonds before the maturity date. YTC calculates the yield assuming the bond is called as soon as it's eligible to be redeemed.
YTM (Yield to Maturity): YTM is the total return an investor can expect if the bond is held until maturity, incorporating the bond's current market price, coupon payments, and par value. YTM considers reinvestment of coupon payments at the yield rate until maturity. It's an essential measure for assessing the bond's overall return.
Coupon: The coupon refers to the fixed annual interest rate paid by the issuer to the bondholder, expressed as a percentage of the bond's face value. For example, if a bond has a face value of 1,000 and a 5% coupon rate, it pays 50 in interest annually.
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