Understanding Bond Yields
When you buy a bond, you are essentially lending money to an issuer (like a government or corporation) in exchange for regular interest payments.
Current Yield vs YTM
- Current Yield: Calculated by dividing the annual coupon payment by the bond's current market price. It represents the immediate return on investment.
- Yield to Maturity (YTM): A more comprehensive measure that includes the current yield plus the gain or loss the investor will realize by holding the bond until it matures at its face value.