Yield to Maturity Law and Legal Definition
Yield to maturity (“YTM”) is the rate of return from an investment if the investment is held until it matures. YTM is considered as a long-term bond yield expressed as an annual rate. Yield to maturity is the most precise measure of a bond's anticipated return and determines its current market price. Sometimes YTM is simply referred to as yield for short.
The calculation of YTM takes into account the current market price, par value, coupon interest rate and time to maturity. If a bond was issued with a yield in excess of the nominal interest rate, it was sold at a discount because it is costing the company more than the stated interest rate. Bond quotes are made in terms of the YTM, but an individual investor's yield may be different if he/she does not hold the bond, or if the bond is called before maturity.
An approximate YTM can be found by using a bond yield table. However, since calculating a bond's YTM is complex and involves trial and error, it is usually done by using a programmable business calculator.
