Yield to Maturity (YTM).
A definition, in plain English — with the books that teach it.
What it means
Yield to Maturity (YTM) is the total annualized return an investor earns if a bond is purchased at its current market price and held until it matures, assuming all coupon payments are reinvested at the same rate. It accounts for coupon income, the time value of money, and any capital gain or loss from buying at a discount or premium to face value. YTM is the most comprehensive single-number measure of a bond's return and is the standard metric for comparing bonds across maturities and coupon structures.
Example
A 10-year bond has a face value of $1,000, an annual coupon of $60, and currently trades at $950. Because the investor pays $950 but receives $1,000 at maturity plus $60/year, the YTM is approximately 6.7% — higher than the 6% coupon rate because of the built-in capital gain from the discount price.
