Published Article Details

5 smart things to know about yield to maturity

Posted by: Labdhi Mehta on May 01, 2017, 06.30 AM IST

1. YTM is the total return an investor can expect from a bond if it is held until the date of its maturity.

2. YTM is expressed as an annualized rate of return. If coupon payments are made on a semi-annual basis, YTM can be calculated on a six month basis as well.

3. While computing YTM it is assumed that all coupon payments are reinvested at the same rate as the bond’s current yield.

4. Since YTM expresses the value of different bonds on the same terms, it becomes a measure to compare various bonds with different maturities and coupon structures.

5. YTM is useful for estimating whether or not a bond is a good investment for an investor by comparing it with the investor’s required yield.

(The content on this page is courtesy Centre for Investment Education and Learning (CIEL). Contributions by Girija Gadre, Arti Bhargava and Labdhi Mehta.) This article appeared in Economic Times dated May 01, 2017, 06.30 AM IST

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