Business, Legal & Accounting Glossary

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

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.

YTM

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

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

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

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.

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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.