If A Coupon Bond Is Selling At Par, Its Current Yield Equals Its Yield To Maturity. Can Someone Explain Why?

For a bond to sell “at par” means that it is selling at full face value. When a bond sells at full face value, the coupon rate (or the bond yield) is the same as yield to maturity since bond interest does not compound.
For example: a bond has a face value of $1,000 with a coupon of 8%. If the bond costs you $1,000, or ‘par’, and you receive $1,080.00 at maturity (or the face value plus the 8% coupon), then your yield to maturity is 8% ($1080-$1000)/($1000) which is the same as the coupon.

This entry was posted in General and tagged , , , , . Bookmark the permalink. Post a comment or leave a trackback: Trackback URL.

One Comment

  1. NHMike
    Posted October 30, 2009 at 11:05 pm | Permalink

    Because it has no profit or no loss since the selling price is equals to the cost (par value)
    That is what we called breakeven.

Post a Comment

Your email is never published nor shared. Required fields are marked *


You may use these HTML tags and attributes: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <s> <strike> <strong>