DEFINITION of 'Yield To Maturity (YTM)'
The rate of return anticipated on a bond if held until the end of its lifetime. YTM is considered a longterm bond yield expressed as an annual rate. The YTM calculation takes into account the bond’s current market price, par value, coupon interest rate and time to maturity. It is also assumed that all coupon payments are reinvested at the same rate as the bond’s current yield. YTM is a complex but accurate calculation of a bond’s return that helps investors compare bonds with different maturities and coupons.
INVESTOPEDIA EXPLAINS 'Yield To Maturity (YTM)'
Yield to maturity accounts for the present value of a bond’s future coupon payments. In other words, it factors in the time value of money, whereas a simple current yield calculation does not.
An approximate YTM can be found by using a bond yield table. However, because calculating a bond's YTM is complex and involves trial and error (guessing and checking), it is usually done by using a business or financial calculator or a computer program.
YTM is the interest rate an investor would earn by investing every coupon payment from the bond at a constant interest rate until the bond’s maturity date. The present value of all of these future cash flows equals the bond’s market price. The calculation can be presented as:
OR
Solving the equation by hand requires understanding the relationship between a bond’s price and its yield. The interest rate is equal to the coupon rate when the bond is priced at par. A bond priced above par (a premium bond) has a coupon rate higher than the interest rate, and a bond priced below par has a coupon rate lower than the interest rate. So if an investor was calculating YTM on a bond priced below par (a discount bond), he would solve the equation by plugging in various annual interest rates that were higher than the coupon rate until he found a bond price close to the price of the bond he was holding.
VIDEO

Par Value
The face value of a bond. Par value for a share refers to the ... 
Term To Maturity
The remaining life of a financial instrument. In bonds, it is ... 
Coupon Rate
The yield paid by a fixed income security. A fixed income security's ... 
Yield Curve
A line that plots the interest rates, at a set point in time, ... 
Yield Basis
A method of quoting the price of a fixedincome security as a ... 
Rate Of Return
The gain or loss on an investment over a specified period, expressed ...

Bonds & Fixed Income
How do I calculate yield to maturity in Excel?
Learn how to calculate a bond's yield to maturity in Microsoft Excel, which is one of the best methods of comparing bonds with different variables. 
Fundamental Analysis
What is the difference between yield and rate of return?
Read about the differences between yield and rate of return. See why many novice investors often struggle more with the concept of yield. 
Bonds & Fixed Income
What are the maturity terms for Treasury bonds?
Learn how treasury bonds pay interest, when they reach maturity and the differences between terms for treasury bonds and treasury notes. 
Bonds & Fixed Income
Bonds: They're Not Just For Seniors
In this article, we'll show you how investors at any stage of life can keep these fixedincome investments. Keep Reading. 
Bonds & Fixed Income
Perpetual Bonds: An Overview
A perpetual bond makes interest payments to the investor forever. This type of bond holds a certain appeal to both the issuer and buyer. 
Bonds & Fixed Income
The Wonders Of Convertible Bonds
Ever wondered what exactly a convertible bond does? Read the features of a convertible bond and learn how important the conversion factor is to you as an investor. 
Bonds & Fixed Income
Know Your Cost Basis For Bonds
Nobody likes taxes, but tax reporting is an inevitable and unavoidable part of investing. If you buy stock, determining your costs basis is a slightly frustrating but fairly straightforward exercise. ... 
Investing
The Advantages Of Bonds
Bonds contribute an element of stability to almost any portfolio and offer a safe and conservative investment. 
Bonds & Fixed Income
Risks To Consider Before Investing In Bonds
Make sure you understand the risks associated with bonds before making an investment decision. 
Mutual Funds & ETFs
Evaluating Bond Funds: Keeping It Simple
Discover some of the key factors for determining a fund's riskreturn profile.