Yield to maturity
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The yield to maturity (YTM), book yield or redemption yield of a fixed-interest security is an estimate of the total rate of return anticipated to be earned by an investor who buys it at a given market price, holds it to maturity, and receives all interest payments and the capital redemption on schedule.[1][2]
It is the theoretical internal rate of return, or the overall interest rate, of a bond — the discount rate at which the present value of all future cash flows from the bond is equal to the current price of the bond.[3] The YTM is often given in terms of annual percentage rate (APR), but more often market convention is followed. In a number of major markets, the convention is to quote annualized yields with semi-annual compounding.[4]
- ^ Thau, Annette (2001). The Bond Book (Revised ed.). New York: McGraw-Hill. p. 56. ISBN 0-07-135862-5.
- ^ Definition of 'Yield To Maturity (YTM)'
- ^ Fabozzi, Frank J. (1996). Bond Markets, Analysis and Strategies (third ed.). Upper Saddle River, NJ: Prentice Hall. p. 37. ISBN 0-13-339151-5.
- ^ Formulae for Calculating Gilt Prices from Yields