Yield to Maturity (YTM) - Definition

Yield to maturity (YTM) measures the annual return an investor would receive if he or she held a particular bond until maturity.

The yield to maturity formula is used to calculate the yield on a bond based on its current price on the market. It looks at the effective yield of a bond based on compounding as opposed to the simple yield which is found using the dividend yield formula.

The yield is usually quoted without making any Allowance for tax paid by the investor on the return, and is then known as "Gross redemption yield". It also does not make any allowance for the dealing costs incurred by the purchaser (or seller). When considering all the basic elements related to calculating a yield to maturity, it is often assumed that all coupons on the bond issue will be reinvested at the same Rate. For a general idea of the yield to maturity of a given bond issue, it is usually acceptable to use a standardized bond yield table. However, it should be noted that the factors involved in calculating a more precise yield to maturity can become quite complex, and may require a certain Amount of trial and error as different scenarios are ran. Today, many financial analysts prefer to calculate a yield to maturity with the use of software programs that can instantly consider several variables and provide a Range of possible yields based on slightly different Interest rates and market prices.



Terms near "Yield to Maturity (YTM)"

Yield to Worst (YTW)
Yupcap
Z-Bond
Z-Certificate
Z-Score
Z-Share
Z-Test
Z-Tranche
Zacks Investment Research
ZAR
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