Yield to maturity

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YTM - Yield to maturity, or profitability that investors receive when buying a bond at the current market price and holding it in their portfolio until the maturity date. We calculate it to compare the degree of attractiveness of investing in a given bond with other investment opportunities. It is often compared to the internal rate of return (IRR) from equity investments in bonds. It is interpreted as the rate that the investor received by investing in the bond he bought at the price P and held to maturity reinvest the interest received at that rate by the rate of return.

YTM properties YTM > C

The current YTM yield is higher than the coupon rate C ⇒ The bond is quoted at a discount. The difference between the nominal value and the market value of the bond = discount. YTM < C

The current YTM yield is less than the coupon rate C ⇒ The bond is quoted at a premium. The difference between the nominal value and the market value of the bond = premium. YTM = C

The current yield of YTM bonds is equal to the coupon rate of C bonds. ⇒ The current bond price is equal to its nominal value.

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