How to Compute Yield to Maturity? | What is Yield Maturity? | FRM Classroom Training Video Lecture | Risk Management: An Essential Training - Management

simply learn your pace your place
financial risk manager frm par one of
the frm exam covers the fundamental
tools and techniques used in risk
management and the theories that
underlie their use yield to maturity
welcome to the 44th session in your
preparation for the frm part 1 exam in
previous sessions you have learned the
concepts of yield to maturity this short
session is dedicated to this topic alone
which shows the importance of the
concept questions from the topic are
usually asked in the examination hence
you are advised to further strengthen
your knowledge of this concept through
this session agenda the main agenda of
our discussion will be extending our
knowledge of yield to maturity or YTM it
is the internal rate of return of the
bond in this session will learn to
compute YTM concepts of annuity and
perpetuity will also be introduced we
will then learn to compute YTM using
spot grades finally we'll end our
session by analyzing the relationship
between coupon rates YTM and bond prices
and we will also see the effect of
changes in interest rate on bond prices
competing yield to maturity let us now
discuss how yield is calculated as
discussed earlier we use the same rate
for all the cash flows as shown we use Y
as the annualized yield assuming semi
annual compounding we have an expression
for discounting the cash flows of a
coupon paying bond of maturity for any
years and a semi-annual coupon rate of C
over two percent the last cash flow will
be the sum of the last coupon and the
face value of the bond paid at maturity
take the following example from the
expression you can make out that the
calculation cannot be simple we need to
use our scientific calculators here we
assume that you have already purchased
the GARP recommended calculators such as
the be a 1 1 plus as we progress through
our curriculum we will learn to use the
calculator we recommend that you
practice using it as it will save you a
lot of time during the examination in
the question on the slide we are asked
to calculate the yield for a two-year
semiannual bond paying a four percent
coupon which is currently priced at
102.1 zero dollars to enter the given
information in your calculator