Yield to Maturity
The total annualised return from holding a bond to maturity, accounting for coupons, the purchase price and the redemption amount.
Formula
Approximate YTM = [Annual Coupon + (Face Value - Price) / Years to Maturity] / [(Face Value + Price) / 2]
Unit
%
In depth
YTM is the standard measure for comparing bonds because it captures every cash flow, and it is the internal rate of return that equates the bond's price with the present value of what it will pay. It carries one assumption that is rarely true: that every coupon is reinvested at the same YTM, which is why realised returns differ from the quoted figure. That assumption is the source of reinvestment risk. For a zero-coupon bond there are no coupons to reinvest, so the YTM is achieved exactly if the bond is held to maturity and the issuer pays.
Worked example
An 8% bond with five years left, bought at ₹950 on a ₹1,000 face value: approximate YTM = [80 + (1,000 - 950) / 5] / [(1,000 + 950) / 2] = 90 / 975 = 9.23%, against a current yield of 8.42%.
Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.
Educational reference only
This entry explains what “Yield to Maturity” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.