Suppose that on January 1, 2013, the price of a one-year Treasury bill is $970.87. Investors expect that the inflation rate will be 2% during 2013, but at the end of the year, the inflation rate turns out to have been 1%. What are the nominal interest rate on the bill (measured as the yield to maturity), the expected real interest rate, and the real interest rate?
Yield to Maturity (YTM):
Yield to maturity is the realized return on a bond if the bond is purchased and held to maturity. In this case, the investor collects all payments from the bond. A bond's yield to maturity is calculated by finding the discount rate that equalizes the present value of the bond payments to the bond's current market price.
Answer and Explanation: 1
The bond's nominal yield to maturity is the discount rate that equalizes the present value of the bond payment to its current price. Since the...
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fromChapter 5 / Lesson 32
What is yield to maturity (YTM)? Understand the definition of yield to maturity (YTM), and know how to calculate it. Also, learn how to calculate the bond yield.