Glossary
Glossary of terms
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Yield to call
- The rate of return on an investment that accounts for the cash difference between a bond’s acquisition cost and its proceeds calculated to the earliest date that the bonds can be called in by the issuing corporation.- www.ifebp.org
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Yield to Maturity
- The yield or return provided by a bond to its maturity date; determined by a mathematical process usually requiring the use of a “basis book.” For example a 5% bond pays $5 a year interest on each $100 par value. To figure its current yield divide $5 by $95--the market price of the bond--and you get 5.26%. Assume that the same bond is due to mature in five years. On the maturity date the issuer is pledged to pay $100 for the bond that can be bought now for $95. In other words the bond is selling at a discount of 5% below par value. To figure yield to maturity a simple and approximate method is to divide 5% by the five years to maturity which equals 1% pro rata yearly. Add that 1% to the 5.26% current yield and the yield to maturity is roughly 6.26%.- www.ifebp.org
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