In this video, students will learn how to think about and calculate the yield to maturity of a bond. Specifically I show how students can use =RATE and =IRR functions in Excel to calculate the yield of a bond making annual coupon payments, and then a bond making semi-annual coupon payments. In the process, you will also see how/why discount bonds have a YTM that is greater than the coupon rate and how/why premium bonds have a YTM that is less than the coupon rate.
Students will particularly find this video useful in understanding parts of Chapter 8 (Interest Rates and Bond Valuation) of Corporate Finance (13th Edition) by Ross, Westerfield, Jaffe and Jordan.
