What is the relationship between YTM and the discount rate of a bond?
They can be considered part of the same thing and depends on the type of bond.Yield to maturity is a concept for fixed rate bonds and is the internal rate of return i.e. the rate at which future flows are discounted on a compound basis to give the present value of the bond including accrued interest.Now technically the discount factor is the 1/(1+y/n)^(tn) where t is the time and n is the periodicity of payment.However the discount margin is usually the spread over a benchmark to represent the credit risk to arrive at the yield to maturity. It is applicable to both floating rate and fixed rate bonds.Yield is a absolute measure, discount margins are relative measures.For example a bond with a 6% YTM when Treasury rates are 4% and the discount rate or margin is 2%, the 2% representing the risk premium over holding treasuries.I.e. two issues with the same maturity can have the same YTM but different coupons and discount rates/margins.
What is the difference between current yield and yield to maturity (YTM)?
HiYTM vs Current YieldYield to maturity or YTM and Current yield are terms that are associated more with bonds. It is not that hard to differentiate the two. The terms themselves show that they are different. The Yield to Maturity is the yield when a bond becomes mature, while the Current yield is the yield of a bond at the present moment.The Current yield is used to make an Assessment on the relationship between the current price of bonds and the annual interest generated by bonds. The YTM is an anticipated rate of the return associated with bonds. The Current Yield is the actual yield an investor would get.The YTM can be called as the rate of return a person will receive for the bond until its maturity. If a bond is bought at a discount of the face value, the YTM would be higher than that of the Current Yield as the discount raises the yield. On the other hand, if a premium is paid for the bond, the YTM will be less to the current yield.Unlike the YTM, the current yield refers to the yield at the current moment and will not show the total return of the bond. The Current Yield also does not take into account the reinvestment risks.The Yield to maturity is determined by using several key elements. The current Yield is one such key element in determining YTM. The other determining elements include current market price and the Par Value. Current Yield can be calculated by dividing the annual payment by the price.When the yield to maturity determines the total return on the investment, the Current yield does not show that.Hope this would help:)