What is 'Yield to maturity'? | Freetrade Dictionary

What is yield to maturity and why is it useful?

Yield to Maturity (YTM) calculates the annualised return you would get on a bond if you held it until its redemption date. It’s a handy way to compare different bonds, as it lets you see which bond might give the highest return over time, taking into account all aspects of the bond, like its price, maturity date, and face value.

You might buy the bond at a price that’s different from its face value. When the price is less than its face value, the bond is trading at a “discount”. When it’s more than its face value, it’s trading at a “premium”.

If you’re buying a bond with a maturity less than or more than a year, remember that YTM is an annualised figure. So, for example, if you have a 28-day UK Treasury Bill, you will get the annualised YTM, but only for the 28 day period between when you buy it and it matures.

More terms

Accounting standards

The rules a company follows when preparing financial statements.

Running yield

The annual interest payment (dividend) divided by the current market price of a bond.

W-8BEN Form

Non-US individuals and businesses may have to file this form for the Internal Revenue Service (IRS), the US tax authority.

52-week high/low

The highest, or lowest, price a share has traded at in a passing year.

Forward pricing

Mutual funds are traded on a forward pricing basis, meaning the price you see will be different to the price you may trade at.

Holding Period Return

The amount of money generated by an asset during the time that it was held by an investor..

Maturity date

The date on which a gilt is redeemed and the gilt holder receives the repayment of the nominal amount and final dividend or coupon payment.

Global Investment Performance Standards (GIPS)

A set of standards which investors use to present their investment results.

Earnings per share

We look at what earnings per share mean and how to calculate it

Yield to maturity