# Compound Interest – Formula for calculating yield to maturity

### The compound interest formula for annual interest rate.

YTM = [C + (F – P) / n] / [(F + P) / 2]

What does P represent in the formula?

A.annual coupon payment
B.face value of the bond
C.market price of the bond
D.number of years to maturity

Correct Answer: C.market price of the bond

The formula you provided is used to calculate the Yield to Maturity (YTM) of a bond. YTM is the total return anticipated on a bond if it is held until it matures. The components of the formula are as follows:

• C represents the annual coupon payment of the bond.
• F represents the face value, or par value, of the bond.
• P represents the current market price of the bond.
• n represents the number of years until the bond matures.

The formula calculates YTM by taking into account the coupon payments, the face value, and the current market price of the bond, as well as the number of years until the bond matures. Specifically, the formula determines the discount rate that equates the present value of all future cash flows (coupon payments and face value) to the current market price of the bond. The YTM is expressed as an annual percentage rate (APR).

I hope this helps! Let me know if you have any further questions.