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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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.

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.

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.

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.

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