hey guys, quick question on NCDs. so, i bought one with a 9% coupon, paid yearly, and 5 years to maturity. paid ₹1,000 for it and will get ₹90 every year. but like how do i calc the yield to maturity (ytm) if i hold it till the end? anyone got a simple way to do it?
Hey Devanshi! So, YTM is basically the return you’ll get if you hold the bond till maturity. It’s like the interest rate that would make the sum of all future payments (coupons + principal) equal to the price you paid for the bond.
To calc YTM, there’s this formula you can use:
Since you paid ₹1,000 and the bond’s face value is ₹1,000, your YTM will be pretty close to the coupon rate (9%). but you can use Excel or a financial calc for more precise calculations.
YTM’s great, but remember it assumes you’re holding to maturity & reinvesting coupons at the same rate. The reality is, interest rates fluctuate. If you sell early or rates change, your actual return could differ. So always check the current market value and the impact of interest rate shifts. It’s good to get an idea, but it’s not a guarantee if you don’t hold the bond till the end.
Thanks, everyone! this clears up a lot. seems like YTM is super helpful for understanding returns, but i’ll have to keep an eye on the market if i decide to sell early or if rates change. appreciate the help!