(1) The estimated annualised yield is calculated based on the investment price set by the investor (buy and sell prices), as well as the specific number of days the bond is held, to determine the annualised rate of return for the bond during the holding period. This rate of return only considers capital gains (or losses) and interest income during the holding period.
(2) The Yield to Maturity (YTM) of a bond refers to the expected annualised rate of return if the bond is held to maturity, and all interest payments are reinvested at the same rate throughout the period. YTM is a more comprehensive method of measuring bond yields as it takes into account all future interest payments and the repayment of principal at maturity, assuming that all interest can be reinvested at the same rate as the YTM.
(3) Reasons for the discrepancy between the estimated annualised yield and YTM may include:
Reinvestment assumption: YTM assumes that all interest is reinvested at the same yield, while the estimated annualised yield does not make this assumption.
Holding period: The estimated annualised yield is calculated based on the actual number of holding days, while YTM assumes the bond is held to maturity.
Treatment of principal at maturity: YTM takes into account the repayment of principal at maturity, while the estimated annualised yield typically only focuses on the difference between the buy and sell prices.
Market interest rate fluctuations: Changes in market interest rates can affect the sell price and thus impact the estimated annualised yield, but YTM is a fixed value calculated at the time of purchase based on market conditions at that time.