Yield to Maturity (YTM)

The YTM is the rate of return that investors earn if they buy a bond at a specific price and hold it until maturity. It assumes that the issuer of the bond makes all due interest payments and repayments of principal as contracted/promised. The YTM on a bond whose current price equals its par/face value (i.e. purchase price  maturity value) would always be equal to its coupon interest rate. In case the bond value differs from the par value, the YTM would differ from the CR. Assuming annual interest payments, the YTM can be computed using Equation 4.3-A.

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