The yield at maturity of a bond

The maturity rate of return, also known as the final rate of return, is the internal rate of return of investing in bonds, that is, the present value of the future cash flow obtained by investing in bonds is equal to the discount rate of the current market price of bonds.

Therefore, the maturity yield is equivalent to what can be obtained if the investor buys at the current market price and holds it until its expiration, while the reinvestment rate (market interest rate) remains constant.Average annual return rate.

The yield at maturity is the income earned by the bondholder from holding the bond to the repayment period, including all interest due.

Take bonds with a face value of 1000 yuan and a coupon of 5% maturing three years later as an example.

Investors will receive 50 yuan of interest in the first year, 50 yuan in the second year, and 50 yuan coupon in the third year, plus the face value of 1000 yuan, that is, the principal of the bond, a total of 1150 yuan will be recovered.

At the time of issuing the bonds, the issuer has agreed to pay the 1150 yuan, and investors will receive annual coupons and get their par value back when the bonds mature.

However, due to factors such as debt rating and interest rates, bond prices are determined by the market.

The maturity yield is used to measure the rate of return on buying bonds at different prices.

Let's take the above bonds as an example.

When you buy bonds at 950 yuan, the maturity yield is 6.6%, which is higher than 5% when you buy bonds with a face value of 1000 yuan.

Buy bonds with 1100 yuan and the maturity yield is only 1.6 per cent.

Thus it can be seen that the lower the bond price, the higher the maturity yield. This is why bond prices move in the opposite direction to maturity yields.