# Yield-to-Maturity (YTM) **Yield-to-Maturity (YTM)** is the total return an investor can expect to earn if a bond is held until it matures. It represents the internal rate of return (IRR) on the bond's cash flows, which include periodic coupon payments and the repayment of the face value at maturity. --- ## Key Points - **Definition:** The discount rate at which the present value of all future cash flows (coupons and face value) equals the current market price of the bond. - **Purpose:** Used to compare the profitability of different bonds with varying prices, coupon rates, and maturities. - **Expressed as:** An annual percentage rate (APR). --- ## Calculation Overview The YTM is found by solving the equation: \[ P = \sum_{t=1}^{n} \frac{C}{(1 + YTM)^t} + \frac{F}{(1 + YTM)^n} \] Where: - \( P \) = current market price of the bond - \( C \) = coupon payment - \( F \) = face value of the bond - \( n \) = number of periods until maturity - \( t \) = each period (year, semi-year, etc.) - \( YTM \) = yield-to-maturity (unknown, solved iteratively) --- ## Summary - YTM provides a comprehensive measure of a bond's expected return. - It accounts for the bond's current price, coupon payments, and face value. - Used as a key metric in fixed-income investment analysis.