Bond Prices And How They Are Related To Yield to Maturity (YTM)

Рет қаралды 32,620

Жыл бұрын

In this video, you will learn how to calculate the price of a bond. In the process, you will also learn what is meant by a bond's Yield to Maturity (YTM), and why bond prices and yields are negatively related to each other.
This video will also help you understand why/when some bonds trade at a discount (i.e. at a price LESS than their face value), why some trade at a premium (i.e. at a price that is GREATER than their face value), and why some trade AT PAR (i.e. at a price EQUAL to their face value).
Finally, and perhaps more importantly, after watching this video you will clearly understand the distinvtion between a bond's coupon rate and its YTM.
Students will particularly find this video useful in understanding parts of Chapter 8 (Interest Rates and Bond Valuation) of Corporate Finance by Ross, Westerfield, Jaffe and Jordan.

Пікірлер: 42

@friendlyneighbourhood2051 7 ай бұрын

WHAT A CLEAR WAY TO TEACH.....................GOD BLESS YOU!!!

@professorikram 7 ай бұрын

That’s very kind of you. Thank you!

@user-uw6xs3ow5b 10 ай бұрын

Clearest explanation of this I have seen yet, and I've been bouncing around multiple videos, audio books, etc. Thank you.

@santhoshram45 Жыл бұрын

Very clear and concise explanation. Thank you Ikram! I'm a PG student trying to get into finance and this helps. Looking forward for more such videos

@ianchang5662 8 ай бұрын

I have been struggling with this for months. Thank you so much for making it clear

@sumaraweerakoon8781 7 ай бұрын

Thank you so much for explaining everything in detail.Keep up the good work !

@lenguyenquynhanh9491 28 күн бұрын

Thank you so much! You are breaking the concepr down in a much more understandable way!!

@nadalahlou2852 4 ай бұрын

God bless you professor, very clear explanation 👏

@BigFish-ii8zd Жыл бұрын

This is a very good video. It is clear and avoids ambiguity (which other videos and explanations about these concepts often do). Keep up the good work. The way to go is simple and clear.

@user-ep1lu3hf7k Жыл бұрын

Thank you so much for the clear explanation!

@mackaylaramdhanie2653 6 ай бұрын

the best explanation i have heard, and trust me, i have watched A LOT of videos thank you so much!!

@maxwellelias5244 Жыл бұрын

Awesome explanation! Thank you very much!

@Bubbles-od2tv 11 ай бұрын

Thanks so much, your explanation is so intuitive and clear.

@jdj8168 Жыл бұрын

Great video, thank you so much.

@leza7584 Жыл бұрын

fantastic video. This helps a lot

@zohanaslam8733 2 ай бұрын

you are my FAVVV TEACHERR, THANKYOUSSS

@QuranKarreem Жыл бұрын

Great Explanation

@3otabe3 7 ай бұрын

Excellent content

@sayandcode 6 ай бұрын

Thanks for educating us sir

@haripeso9408 Жыл бұрын

great video and appreciate it

@diegodabson6777 6 ай бұрын

thank you so much for those clear explanations, IN CRE DI BLE teaching skills.

@sunghkim1587 10 ай бұрын

Awesome stuff! Thanks Ikram! Can you also please make your magical video on the hypothesis testing and Jarque-Bera Test when you have chance?

@Invest-qh3jh 6 ай бұрын

Amazing

@tudor3492 4 ай бұрын

priceless!!!

@DORRAVS Жыл бұрын

Legend

@AryanRaj-vy4vj Жыл бұрын

Thanks

@chikstnt 10 ай бұрын

Thank you so much. could you create a series of videos about a topic of analysis of financial statment, please?

@professorikram 10 ай бұрын

Thank you! I do have a couple of videos on some ratios, but will make more and in the form of a series. Thanks for the suggestion.

@andreykirillov4436 Ай бұрын

Don't let this setback define your trading journey. Keep working hard and striving for success.

@sandyrl7085 4 ай бұрын

Good video! I have a question when the rr increased to 10% the value of the Bond became 877, and when It decreased to 6% It became 1147. Even tho the rr changed by the same amount, the price didnt change by the same amount. 1000-877 = 123 dollar price change, and 1147 -1000 147 dollar price change. Is this due to positive convexity in the Bond?

@professorikram 4 ай бұрын

Great question! Yes, bonds vary in their sensitivity to changes in interest rates, and yes it has to do with convexity. You should look into “bond duration” which somewhat captures these ideas.

@forheuristiclifeksh7836 Ай бұрын

2:00

@mwp6662 9 ай бұрын

How do you determine the investor's required rate of return? Is it the next best available rate of return on an available safe asset, or maybe fed rate?

@professorikram 3 ай бұрын

Required rate of return is always the next best rate you can get on asset of EQUAL risk! Not necessarily the fed rate.

@jrs7541 Ай бұрын

so which is better? the present value being higher than the face value or the present value being lesser than the face value? Please explain.

@professorikram Ай бұрын

Neither is better per se. If you bought the bond at face value and then the price drops because yields go up (which they HAVE over the past couple of years), then by selling the bond you’ll make a loss. However, if you hadn’t bought the bond before, and by it after the prices drop, then you’d essentially be making a higher return (or yield) than the original coupon rate (assuming you hold the bond till maturity and there is no default risk). I suppose you can say that’s “good” in that sense. So it just depends on the perspective. Does that help?

@jrs7541 Ай бұрын

@@professorikram thank you for taking time to answer. I really want to understand the concept. How do we get the yields or the rate of required return?

@professorikram Ай бұрын

@jrs7541 great question! In this video, I treat them as given. In the REAL world, it is not Yield to Maturity that determines the price. Rather it is the price that determines the YTM. People buy and sell bonds in the bond market, and the forces of supply and demand determine the price. If a bond is offering is 3% coupon, but people want 6%, they will demand less of it. This will decrease the price up until the point that where buying at that low price will give you 6%. Now, if your question is - where does the 6% come from … well that demands on a host of factors, primarily including the rate the government is offering on its bonds (ie the “risk free” rate), the inflation rate and the default risk of the bond. That’s a separate video! 😀