Yield to Maturity (YTM)

Yield to Maturity (YTM) is the total return anticipated on a bond if it is held until it matures. YTM is expressed as an annual rate and considers the bond’s current market price, Par Value, coupon Interest Rate, and time to maturity. For example, if a bond with a Par Value of $1,000, a Coupon Rate of 5%, and 10 years to maturity is currently priced at $950, the YTM can be calculated to reflect the effective return based on these factors.

In a case where a bond’s market price is below par, the YTM will be higher than the Coupon Rate, indicating that investors can achieve greater Returns by holding the bond until maturity.