Yield to maturity: Difference between revisions
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(YTM). | (YTM). | ||
The measure of yield on a financial instrument - for example a bond - from the current date until maturity | The measure of yield on a financial instrument - for example a bond - from the current date until its final maturity. | ||
It takes into account the capital gain on a bond (or other financial instrument) trading at a discount, or the capital loss on a bond (or other financial instrument) trading at a premium. | |||
More specifically the return on a security held to maturity, taking account of the coupon and re-investment rates and the buying price compared to its face value. | More specifically the return on a security held to maturity, taking account of the coupon and re-investment rates and the buying price compared to its face value. | ||
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It is an internal rate of return calculation performed on the security’s expected cash flows, including the initial investment outflow (= the current market value). | It is an internal rate of return calculation performed on the security’s expected cash flows, including the initial investment outflow (= the current market value). | ||
Yield to maturity is similar to yield to redemption. | |||
However, the expected redemption date may be earlier than the final maturity date, depending on any related options in favour of the issuer or the investor. | |||
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* [[Bond]] | * [[Bond]] | ||
* [[Cost of debt]] | * [[Cost of debt]] | ||
* [[Discount]] | |||
* [[Internal rate of return]] | * [[Internal rate of return]] | ||
* [[Macaulay duration]] | * [[Macaulay duration]] | ||
* [[Maturity]] | |||
* [[Premium]] | |||
* [[Yield]] | * [[Yield]] | ||
* [[Yield to redemption]] | |||
* [[Yield to worst]] | * [[Yield to worst]] | ||
[[Category:The_business_context]] | |||
[[Category:Corporate_finance]] | |||
[[Category:Investment]] | |||
[[Category:Long_term_funding]] | |||
[[Category:Identify_and_assess_risks]] | |||
[[Category:Manage_risks]] | |||
[[Category:Financial_products_and_markets]] | |||
Latest revision as of 20:48, 30 October 2021
(YTM).
The measure of yield on a financial instrument - for example a bond - from the current date until its final maturity.
It takes into account the capital gain on a bond (or other financial instrument) trading at a discount, or the capital loss on a bond (or other financial instrument) trading at a premium.
More specifically the return on a security held to maturity, taking account of the coupon and re-investment rates and the buying price compared to its face value.
YTM assumes that all coupons are fully paid out on their due dates and reinvested at the same yield and that the principal is paid back in full upon maturity.
It is an internal rate of return calculation performed on the security’s expected cash flows, including the initial investment outflow (= the current market value).
Yield to maturity is similar to yield to redemption.
However, the expected redemption date may be earlier than the final maturity date, depending on any related options in favour of the issuer or the investor.
