Yield to maturity Definition
The percentage rate of return on a bond if it is held to maturity. When a bond is selling at par this is the same as the nominal yield. Although, when a bond is selling at a discount, at its maturity date an investor will also receive the difference between the discount and par. On the other hand, an investor loses the difference between the premium and par at redemption if it’s at a premium. Calculation of YTM is:
YTM = I + [(FV – CV) / N] / (FV + CV) / 2
where
I = interest paid annually in dollars
FV = face value
CV = current value (price)
N = number of years until maturity