Yield to maturity

Yield to maturity is the single discount rate that makes the present value of all a bond's remaining payments, coupons plus the final repayment of face value, equal to its current market price. In plain terms, it is the bond's annualised total return from now to maturity, assuming the issuer pays everything on time and each coupon is reinvested at that same rate. It captures both the income from coupons and any gain or loss from the price you pay relative to the face value you will receive at the end.

Yield to maturity is the standard way to compare bonds with different coupons, prices and maturities, and it is the figure usually quoted as a bond's yield. Its assumptions matter. If you sell before maturity, your return depends on the price at that time, not on the yield when you bought. If coupons are reinvested at lower rates, the realised return will fall short. And for a risky issuer, a high yield to maturity is a promised return, not an expected one, because it assumes no default.