**YIELD TO MATURITY**

The **Yield to Maturity** (**YTM**) of a bond is understood as being the annually compounded rate of return that an investor earns, if he does buy the bond at the current price and holds it until its *maturity*.

The **YTM** can also be perceived as being quite simply the annual discount rate that sets the present value of the promised payments equal to the current price.

Useful considerations regarding the **YTM** and a bond‘s coupon rate:

– When a bond‘s coupon rate is lower than its **YTM**, then we can say that the bond is selling at a discount.

– When a bond‘s coupon rate is higher than its **YTM**, then we can say that the bond is selling at a premium.

– When a bond‘s coupon rate is equal to its **YTM**, then we say that the bond is selling at par.

**Yield to Maturity (YTM) formula** in text:

**Yield to maturity** (**YTM**) = [ sqrt[n] ( Face value / Present value ) ] – 1