Yield to Maturity v. Par-Rate

Hi everyone,

I have a question regarding the terminology used in the CFA curriculum (this was addressed in another forum post, but it did not seam to yield (no pun intended) any insights: https://www.analystforum.com/forums/cfa-forums/cfa-level-ii-forum/91339272).

To be clear, I do understand the definitions of Yield to Maturity v. Par-Rate (and that for a bond priced at par the YTM is equal to the par-rate), but it seems to me that in the Reading 36 both terms are used interchangeably. For instance:

  1. Example 2: The yield to maturity (“par rate”) for a benchmark one-year annual-pay bond is 2% …

  2. Example 5: Using the par curve from Example 2 and Example 4, the yield to maturity for a one-year annual-pay bond is 2%, for a two-year annual-pay bond is 3%, and for a three-year annual-pay bond is 4%.

In the exam, if they call the provided rates YTMs, should we just assume that they mean Par rates and proceed with the bootstrapping (so far the par rates were always provided in order to use them to compute the spot rates via bootstrapping).



PS: Alright, I’ll admit it, the pun at the beginning was intended.

I guess the key to answering your question is the maturity. Both cases state a one year bond.

I just get a feeling that its something related to being a one year bond and having 2 certain cash flows in the future aka the coupon and the principal that makes the bond par and YTM the same.

Hope someone else can explain this better.

Thank you for your response.

But you are also given the rates for two year, three year bonds etc. in both examples (I did not copy the entire examples, since the hosts in forum delete these)

Oh didn’t read the statement properly, well I guess I need sleep.

For any risk-free bond, the YTM is equal to the par rate; that’s the definition of the par rate.

I believe what you meant what that for a bond priced at par, the YTM is equal to the _ coupon _ rate.