What does YTM stand for?

The yield to maturity ( YTM ), book yield or redemption yield of a fixed-interest security is an estimate of the total rate of return anticipated to be earned by an investor who buys a bond at a given market price, holds it to maturity, and receives all interest payments and the capital redemption on schedule.

What is yield to maturity (YTM)?

The term yield to maturity (YTM) refers to the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield but is expressed as an annual rate.

What is the YTM on a bond?

The approximated YTM on the bond is 18.53%. The primary importance of yield to maturity is the fact that it enables investors to draw comparisons between different securities and the returns they can expect from each. It is critical for determining which securities to add to their portfolios.

How do you calculate YTM?

Let's say an investor currently holds a bond whose par value is $100. The bond is currently priced at a discount of $95.92, matures in 30 months, and pays a semi-annual coupon of 5%. Therefore, the current yield of the bond is (5% coupon x $100 par value) / $95.92 market price = 5.21%. To calculate YTM here, the cash flows must be determined first.