How does the periodicity of Coupon Payment affect the YTM of a bond? For example, if I buy a bond that pays 10% Coupon Semi-Annually whose Face Value is 100, and if the same bond pays 10% Annually, what is the difference between those two bonds and does the YTM change. In first case will I get 5% paid twice and in second case I will get paid 10% once. Does YTM change in both cases?
The total cash-flows received from owning the two bonds is the same. However, the semi-annual bond pays slightly quicker. Quicker payment of the same total cash-flows results in a higher yield.