What is Yield to maturity (YTM)?
Yield to Maturity (YTM) is the annual rate of return on a bond assuming the debt security is held until maturity.
Yield to maturity (YTM) is the total return expected on a bond if it is held until maturity. YTM is a long-term bond yield that is expressed in annual terms. In other words, it is the internal rate of return (IRR) of a bond investment if the investor holds the bond until maturity and receives all scheduled payments and reinvested at the same rate.
YTM is similar to current yield in that it divides annual cash inflows from a bond by its market price to calculate how much money one would make by purchasing a bond and holding it for one year. YTM, on the other hand, accounts for the present value of a bond’s future coupon payments, as opposed to current yield. In other words, it takes into account the time value of money, whereas a straightforward current yield calculation does not. As a result, it is frequently regarded as a more thorough method of calculating the return on a bond.