Results for Yield to maturity
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Investment Dictionary:

Yield To Maturity - YTM

The rate of return anticipated on a bond if it is held until the maturity date. YTM is considered a long-term bond yield expressed as an annual rate. The calculation of YTM takes into account the current market price, par value, coupon interest rate and time to maturity. It is also assumed that all coupons are reinvested at the same rate. Sometimes this is simply referred to as "yield" for short.

Investopedia Says:
An approximate YTM can be found by using a bond yield table. However, because calculating a bond's YTM is complex and involves trial and error, it is usually done by using a programmable business calculator.

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Financial & Investment Dictionary: Yield to Maturity (YTM)

Concept used to determine the rate of return an investor will receive if a long-term, interest-bearing investment, such as a bond, is held to its Maturity Date. It takes into account purchase price, Redemption value, time to maturity, Coupon yield, and the time between interest payments. Recognizing time value of money, it is the Discount Rate at which the Present Value of all future payments would equal the present price of the bond, also known as Internal Rate of Return . It is implicitly assumed that coupons are reinvested at the YTM rate. YTM can be approximated using a bond value table (also called a bond yield table) or can be determined using a programmable calculator equipped for bond mathematics calculations. See also Duration; Horizon Analysis; Yield to Average Life; Yield to Call.

 
Banking Dictionary: Yield to Maturity

Annualized percentage return of a bond held until its stated maturity. This is a commonly accepted method of comparing yields on bonds with different coupon interest rates, because it assumes that interest income will be reinvested at the current yield and it takes into account any adjustments for bond premium or discount. For this reason it differs from Current Yield, which may be higher or lower.

Yield to maturity quotes may also differ from an investor's actual return at maturity because they assume constant reinvestment of interest at the currently quoted yield. This may or may not be accurate if the bonds are sold at prices above, or below, their face value, or Par Value. For easy reference, the yield to maturity of a given bond can be found in the bond tables prepared by financial publishers. Certain types of programmable calculators can also be used to compute yield to maturity. Also called effective rate of return. See also Bond Equivalent Yield; Duration; Yield to Average Life; Yield to Call.

 
Real Estate Dictionary: Yield to Maturity (YTM)

The Internal Rate of Return on an investment. Considers all inflows and outflows of investment returns and their timing. Contrast with Current Yield.
Example: An income-producing property requires a $10,000 investment. It promises a $1,000 annual return for 5 years, then resale proceeds of $15,000. The yield to maturity is 17.1%. See Internal Rate of Return for formulas.

 
Law Dictionary: Yield to Maturity

A calculation of yield on a bond that takes into account the capital gain on a discount bond or capital loss on a premium bond. In the case of a discount bond, the yield-to-maturity (YTM) is higher than the current yield or the coupon yield. The reverse is true for a premium bond with YTM lower than both current yield and coupon yield. See yield.

 
Wikipedia: Yield to maturity

Yield to maturity (YTM) is the yield promised by the bondholder on the assumption that the bond will be held to maturity, that all coupon and principal payments will be made and coupon payments are reinvested at the bond's promised yield at the same rate as invested. It is a measurement of the return of the bond. This technique in theory allows investors to calculate the fair value of different financial instruments. The YTM is almost always given in terms of annual effective rate.

The calculation of YTM is identical to the calculation of internal rate of return.

  • If a bond's current yield is less than its YTM, then the bond is selling at a discount.
  • If a bond's current yield is more than its YTM, then the bond is selling at a premium.
  • If a bond's current yield is equal to its YTM, then the bond is selling at par.

Variants of Yield to maturity

Given that many bonds have different characteristics, there are some variants of YTM:

  • Yield to Call: when a bond is callable (can be repurchased by the issuer before the maturity), the market looks also to the Yield to Call, which is the same calculation of the YTM, but assumes that the bond will be called, so the cashflow is shortened.
  • Yield to Put: same as Yield to Call, but when the bond holder has the option to sell the bond back to the issuer at a fixed price on specified date.
  • Yield to Worst: when a bond is callable, "puttable" or has other features, the yield to worst is the lowest yield of Yield to Maturity, Yield to Call, Yield to Put, and others.

Example

Consider a 30-year zero coupon bond with a face value of $100. If the bond is priced at a yield-to-maturity of 10%, it will cost $5.73 today (the present value of this cash flow). Over the coming 30 years, the price will advance to $100, and the annualized return will be 10%.

But what happens in the meantime? Suppose that over the first 10 years of the holding period, interest rates decline, and the yield-to-maturity on the bond falls to 7%. With 20 years remaining to maturity, the price of the bond will be $25.84. Even though the yield-to-maturity for the remaining life of the bond is just 7%, and the yield-to-maturity bargained for when the bond was purchased was only 10%, the return earned over the first 10 years is 16.26%. This can be found by evaluating (1+i) = (25.84/5.73)0.1 = 1.1626.

Over the remaining 20 years of the bond, the annual rate earned is not 16.26%, but 7%. This can be found by evaluating (1+i) = (100/25.84).05 = 1.07. Over the entire 30 year holding period, the original $5.73 invested matured to $100, so 10% annually was made, irrespective of interest rate changes in between.

See also

External links

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Copyrights:

Investment Dictionary. Copyright ©2000, Investopedia.com - Owned and Operated by Investopedia Inc. All rights reserved.  Read more
Financial & Investment Dictionary. Dictionary of Finance and Investment Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.  Read more
Banking Dictionary. Dictionary of Banking Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.  Read more
Real Estate Dictionary. Dictionary of Real Estate Terms. Copyright © 2004 by Barron's Educational Series, Inc. All rights reserved.  Read more
Law Dictionary. Law Dictionary. Copyright © 2003 by Barron's Educational Series, Inc. All rights reserved.  Read more
Wikipedia. This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Yield to maturity" Read more

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