Yield to Maturity [YTM]

Yield to Maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. YTM is expressed as an annual percentage rate and accounts for the current market price, par value, coupon interest rate, and time to maturity. It assumes that all coupon payments are reinvested at the same rate as the bond’s current yield. For example, if you purchase a bond with a face value of $1,000 for $950 with a 5% coupon rate and 10 years to maturity, the YTM would be approximately 5.53%. This is higher than the coupon rate because you’re buying the bond at a discount. YTM is considered the most comprehensive measure of a bond’s return and allows investors to compare bonds with different maturities and coupons on an equal basis.