Yield to Maturity
Aidan Hamade avatar
Written by Aidan Hamade
Updated over a week ago

The interest rate that equates the present value of bond's cashflows to its current price.

Yield to maturity assumes that the bond will be held to maturity, and that all interim cash flows will be reinvested at a rate equal to the yield to maturity.

If the bond is not held till maturity, or if interim cash flows are reinvested at a rate that differs from the yield to maturity, an investor's actual yield will differ from the yield to maturity.

Since the yield to maturity calculation equates a bond's cash flows to its current price, this yield calculation considers both coupon income and any capital gain or loss the investor will realise by holding the bond till maturity.

Where the coupon is partly dependent on Libor, future coupons are forecast by holding Libor unchanged from its most recent coupon rate.

Please note this calculation may be positively or adversely affected by features in bonds such as calls or prepayments.

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