Investors can estimate the actual return from a bond, even without the exact maturity date, with yield to average life. Yield to average life is a calculation that can help them determine if they should buy more bonds, in the case that they’re trading at lower than their value.
How is this done? By assuming that the bond matures based on the day calculated by its average life and average redemption price, rather than its face value (known as the par price).
Just another nifty tool to help investors speculate on where to shop for their next investment. We’re not talking life insurance here. We’re talking bonds.
You know how you’re slowly dying a little bit every day? Well, there are bonds that slowly die every day, too. You can calculate how quickly they die (okay, “retire” is the proper word to use here) using the yield to average life calculation.
The yield to average life calculation tells investors the estimated return from a bond without using the exact maturity date. More specifically, it tells you how long it will take to recover half of the bond’s face value. The faster you get the money, the lower the risk of default. Plus, the faster you get the money, the sooner you can invest it. Or...buy ice cream with it. Whichever you think will be the wisest use of your dough.
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Finance: What is Term To Maturity?12 Views
finance a la shmoop what is term to maturity alright people well it's kind
of a lifecycle of a bond like a bond is issued or sold it has an assay a 15 year [Bond timeline appears]
duration somebody's written that money for 15 years its term to maturity when
it first was issued was 15 years but if you bought that bond nine years into it
some you know maturation process when all the hairs growing in funny places [Hairs grow out of bond]
then at that point it would have six years current maturity well what goes on
between these years interest payments and then eventually at the very end the
issuer pays back the principal to the investor who bought the bond and [Money transfers from issuer to investor]
everyone goes away happy-ish well bonds carry gradations in short medium and
long term terms to maturity like short term generally is considered one to five [Different types of bond appear]
years mid term medium term and something like that is like five to a dozen years
and long term is like up to you know thirty or even a hundred years after
that dozen or so no hard lines here they're all dotted and yeah Disney [Man discussing bonds at DisneyLand]
actually sold a hundred year bonds at one point and they are of course the
happiest bonds on earth [Disney bonds appear]
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What is Yield to Maturity? When calculating bond yields, the yield to maturity is the interest rate that an investor would ultimately accumulate if...