Definition
Yield to maturity is the total return an investor will earn if they buy a bond at its current price and hold it until maturity, assuming all payments are made as scheduled and reinvested at the same rate. YTM accounts for coupon payments, current price, face value, and time to maturity.
Formula
YTM calculation requires solving for r: Price = Σ(Coupon/(1+r)^t) + Face Value/(1+r)^n
Example
A bond priced at $950 with $50 annual coupons and $1,000 face value maturing in 5 years has a YTM of approximately 6.1%.
FAQ
What is Yield to Maturity (YTM)?
The total return anticipated if a bond is held until maturity.
How do you calculate Yield to Maturity (YTM)?
A common formula for Yield to Maturity (YTM) is: YTM calculation requires solving for r: Price = Σ(Coupon/(1+r)^t) + Face Value/(1+r)^n
Why is Yield to Maturity (YTM) important?
Yield to Maturity (YTM) helps investors evaluate fixed income and make more informed decisions.