What is yield to maturity?

Yield to maturity (YTM) is the annual rate of return on a bond if you did not sell it before it matured. It is expressed as a percentage. YTM includes all the interest the bond would pay annually, known as coupons, plus recoupment of your original investment after the bond matured. It is a useful tool for fixed income investors to compare bonds with different coupons and maturity dates.

YTM is a complex calculation and meant only as a projection. It assumes all interest or coupon payments are reinvested at the bond’s current yield, which may not always be possible or even likely. The formula factors in the bond’s current market price, the coupon payments, the recoupment amount, and the term to maturity. Because a bond’s coupon interest rate fluctuates, YTM on any given bond will fluctuate. YTM does not take into account taxes paid by the investor or investment costs related to the purchase.


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