Yield To Maturity

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Definition: Yield To Maturity

Yield To Maturity

Quick Summary of Yield To Maturity

The yield that would be achieved on a bond if it was held until maturity.

What is the dictionary definition of Yield To Maturity?

Dictionary Definition

  • 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 expects 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. The 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.

Full Definition of Yield To Maturity

Yield to maturity, the most widely quoted yield for bonds, measures the total overall return.

A bond’s yield to maturity is the overall rate of return that the bond earns if purchased at today’s market price and held until its maturity date. Yield to maturity includes both the yearly interest the investor earns, and the difference between what the investor paid for the bond and the amount the investor receives at the bond’s maturity. Unless otherwise noted, yields are quoted for bonds on a yield to maturity basis. A bond’s yield to maturity can be calculated with a specialized bond calculator. Yield to maturity is often referred to as the yield or basis, so a 5.00% yield to maturity means the same as a 5.00% yield or a 5.00% basis. In addition to its yield to maturity, a bond’s yield can also be expressed in terms of its nominal yield, current yield, and yield to call.

Synonyms For Yield To Maturity


Related Phrases

Annual percentage yield
Average dividend yield
Average maturity
Balloon maturity
Bond equivalent yield
Capital gains yield
Constant maturity
Constant maturity treasuries
Convenience yield
Cost yield
Coupon equivalent yield
Current maturity
Current yield
Dividend yield
Dividend yield funds
Dividend yield stocks
Earnings yield
Effective annual yield
Equivalent bond yield
Equivalent taxable yield
Flat yield curve
Flattening of the yield curve
High yield
High yield bond
Indicated yield
Inverted yield curve
Liquid yield option note
Maturity clienteles
Maturity date
Maturity factoring
Maturity gap
Maturity phase
Maturity spread
Maturity value
Negative yield curve
Nominal yield
Non parallel shift in the yield curve
Normal yield curve
Original maturity
Parallel shift in the yield curve
Positive yield curve
Potential average dividend yield
Projected maturity date
Pure yield pickup swap
Realized compound yield
Realized yield
Relative yield spread
Remaining maturity
Reoffering yield
Required yield
Return to maturity expectations
Riding the yield curve
Stated maturity
Stated yield
Steepening of the yield curve
Term to maturity
Time to maturity
Weighted average maturity
Weighted average portfolio yield
Weighted average remaining maturity
Yield burning
Yield curve
Yield curve option pricing models
Yield curve strategies
Yield ratio
Yield spread strategies
Yield to call
Yield to call, option or event date
Yield to worst

Yield To Maturity FAQ's

What is Yield to Maturity?

Yield to maturity is the total earnings or return an investor anticipates earning from a bond assuming they keep it until it matures. This includes all interest and coupon payments as well as any premium or discount adjustments.

The yield to maturity of a bond is the total annual return on the bond if it is held until the maturity date. When a bond is purchased, it can either be sold at a discount or at a premium.

How to Calculate Yield to Maturity

The par value of the bond, its market value, the yearly interest rate, the bond’s maturity in years, and the timing of coupon payments are all inputs to the calculation (such as quarterly, semi-annually, or annually). If a bondholder sells the bond before the maturity date, the yield to maturity on that investment may differ from the amount realised if the bond was held to maturity.

Several issues included in the yield to maturity calculation are as follows:

  • It discounts cash flows to their present value
  • All coupon payments are assumed to be reinvested at the same rate of return as the current yield to maturity
  • All coupon payments are assumed to be paid on time
  • There is no consideration of the transaction costs required to buy or sell a bond
  • There is no consideration of the tax rate paid by the investor

The calculation of yield to maturity can be performed manually, but requires a series of trial and error estimates to gradually refine the result. A much easier approach is to plug the necessary information into a formula in an electronic spreadsheet.

Cite Term

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Modern Language Association (MLA):
Yield To Maturity. PayrollHeaven.com. Payroll & Accounting Heaven Ltd.
August 16, 2022 https://payrollheaven.com/define/yield-to-maturity/.
Chicago Manual of Style (CMS):
Yield To Maturity. PayrollHeaven.com. Payroll & Accounting Heaven Ltd.
https://payrollheaven.com/define/yield-to-maturity/ (accessed: August 16, 2022).
American Psychological Association (APA):
Yield To Maturity. PayrollHeaven.com. Retrieved August 16, 2022
, from PayrollHeaven.com website: https://payrollheaven.com/define/yield-to-maturity/

Definition Sources

Definitions for Yield To Maturity are sourced/syndicated and enhanced from:

  • A Dictionary of Economics (Oxford Quick Reference)
  • Oxford Dictionary Of Accounting
  • Oxford Dictionary Of Business & Management

This glossary post was last updated: 13th April, 2022 | 0 Views.