Yield to Maturity (YTM)
The total annualized return if you buy today and hold to maturity.
What is Yield to Maturity (YTM)?
The discount rate that sets the present value of all remaining coupons plus par equal to the current market price. It captures coupon income plus any discount or premium amortized to maturity, and assumes coupons are reinvested at the same rate.
Yield to Maturity (YTM): a worked example
Buy a 5% coupon bond at $900 with 10 years left: YTM is roughly 6.4%, above the 5% coupon because you also collect the $100 discount.
More terms in Securities & Instruments
Common Stock
An ownership share in a company, with voting rights and last claim on assets.
Preferred Stock
Equity with a fixed dividend and priority over common, usually without votes.
Bond
A loan to an issuer that pays interest and returns principal at maturity.
Coupon Rate
The bond's stated annual interest as a percentage of par.
Par Value (Face Value)
The principal repaid at maturity, conventionally $1,000 per bond.
Duration
A bond's price sensitivity to a 1% change in interest rates.
Credit Rating
An agency's assessment of an issuer's likelihood of default.
High-Yield (Junk) Bond
A below-investment-grade bond paying more to compensate for default risk.