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Yield to maturity (YTM) is the internal rate of return on cash flow of a fixed income security, often bond, if the security were to be held until maturity. It is a measurement of the performance of the bond. This technique in theory allows investors to calculate the fair value of different financial instruments. The calculation of YTM is identical to the calculation of internal rate of return.
- If a bond's current yield is less than its YTM, then the bond is selling at a discount.
- If a bond's current yield is more than its YTM, then the bond is selling at an premium.
- If a bond's current yield is equal to its YTM, then the bond is selling at par.
see: Bond valuation
