Glossary term
Yield to maturity
Yield to maturity is a bond yield estimate based on price, coupon payments, face value, and time to maturity.
Plain meaning
What yield to maturity means
Yield to maturity, often shortened to YTM, is the annualized rate implied by a bond's current price and scheduled cash flows if the bond is held to maturity under the model assumptions.
Formula role
How OpenBook uses it
OpenBook calculators estimate yield to maturity from the entered bond price, face value, coupon rate or coupon payment, payment frequency, and remaining time to maturity.
Common limitation
What the estimate leaves out
A simplified YTM estimate assumes scheduled payments occur as entered. It does not by itself model default risk, reinvestment rates, taxes, transaction costs, call features, or selling before maturity.