9 lines
495 B
Markdown
9 lines
495 B
Markdown
YTM is the most comprehensive yield measure because it accounts for three things:
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- Coupon income
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- Capital gain or loss (if bought below or above par)
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- Reinvestment of coupons at the same rate
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That last assumption — reinvesting coupons at the same YTM — is also its main weakness, because interest rates change over time. That's called **reinvestment risk**.
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One key fact worth memorizing: **when a bond trades at par, current yield = approximate YTM = YTM.** They're only equal at par. |