YIELD TO MATURITY (YTM)

A rate of return measuring the total performance of a bond, so Imagine you are interested in buying a bond, at a market price that’s different from the bond’s par value; the YTM would be used to gauge the composite rate of return off all payouts, coupon, and capital gain or loss (The capital gain or loss is the difference between par value and the price you actually pay.) The yield- to-maturity is the best measure of the return rate, since it includes all aspects of your investment. Although there are problems with YTM these are that it assumes that you will reinvest the interest payment at the same rate on the bond, this uncertainty surrounding the rate at which interest payments may be reinvested is known as reinvestment risk.