# Yield to maturity

• The annualized internal rate of return on an investment that equates the expected cash flows from the investment to its cost.

• The rate of return investors expect to earn if they buy a bond at a specific price and hold it until it matures. Assumes that issuer makes all scheduled interest and principal payments as promised. Annual rate of interest earned on a security purchased on a given day and held to maturity. This is an ex ante (forecast) calculation that assumes the coupon interest, when received is reinvested at YTM for the remaining term to maturity. It is that discount rate that equates the current price of the bond with the sum of the discounted value of all promised cash flows.

• Abbreviated YTM. The rate of return yielded by a debt security held to maturity when both interest payments and the investor's capital gain or loss on the security are taken into account. For a risk-free bond, the YTM equals the market capitalization rate.

• The rate of return anticipated on a bond if it is held until the Maturity Date.

• The percentage rate of return paid on a bond, note or other fixed income security if you buy and hold it to its maturity date. The calculation for YTM is based on the coupon rate, length of time to maturity and market price. It assumes that coupon interest paid over the life of the bond will be reinvested at the same rate.

• Is the rate of return which is measured by the current expected income stream relative to the prevailing market price assuming that the asset is held until maturity. If the instrument is trading at a discount, then the yield to maturity will be greater than the coupon rate. If the instrument is trading at a premium, then the yield to maturity will be less than the coupon rate.

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Related Terms

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