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Essay / Research Paper Abstract
This 3 page paper looks at what is meant by the term yield to maturity (YTM) when it is applied to bonds, what influences the YTM and how it can be seen in the real world, using the example of General Motors and General Electric. The bibliography cites 2 sources.
Page Count:
3 pages (~225 words per page)
File: TS14_TEyeildtm.rtf
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Unformatted sample text from the term paper:
will be gained form a bond and uses then to look at the annualised rate of return. It may appear that bonds give a set rate of return and as
such the yield is easy to calculate, merely by looking at the coupon attached to the bond, but the market is more complex than this. There are several reasons for
the differences. The first consideration is the current rate if interest or return from the market. If we assume the perspective of an investor looking at buying a bond
where there are several offered, if one bond is offering 5% and one bond, with the same risk profile, is offering 7% then the 7% bond will be more popular;
it is giving a better return. This increases the demand for the bond and as such this alone will account why there may be a price difference, an investor will
be prepared to pay out more for a bond that is paying an income of 7% compared to a bond that is paying an income of 5%. In reality
there is also consideration of the current market rates, the bond paying 5% may have been issued when market rates were 5%. If the interest rates decrease, then 5% would
be a good investment, and as such the original purchaser may choose to sell the bond, as it is likely that a buyer will be prepared to pay more than
the face value. For example, 5% of 1,000 is 50 as the rate paid is paid on the face value of the bond. If interest rates reduce to 4% then
50 is equivalent to 4% on 1,250, if the bond has a long time to run then it is the investment that is bought and an immediate profit may be
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