Yield to maturity (YTM)
Principles of Finance glossary · Valuation of Bonds & Stocks
Definition
The IRR on a bond's cash flows assuming it is held to maturity and coupons are reinvested at the YTM.
Yield to maturity (YTM) in plain English
Yield to maturity is the total annual return you'd earn on a bond if you buy it today and hold it until it fully pays off at the end. It rolls three things into one number: the interest payments, plus any gain or loss because you paid more or less than the bond's final payback amount. Think of it as the bond's "true" interest rate from where the price sits right now, not just the sticker coupon. One fine-print assumption: it treats every interest payment as reinvested at that same rate — a tidy idea that rarely holds perfectly in real life.
Also called: YTM
Learn these first
Related Principles of Finance terms
Principles of Finance practice questions · Principles of Finance flashcards · Principles of Finance study guide