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

Hedge Fund

Investment funds that are often associated with riskier and shorter-term trading strategies.

Hypothesis Testing

A mathematical test used to determine whether a claim is true or false.

Net Income (NI)

The money a firm is left with from sales after subtracting taxes and different business costs.

Total Return

This is the measurement of a fund’s performance in a specific period.

Gilt

What is a gilt?

Exchange-Traded Fund (ETF)

A collection of investments, pooled into a single fund that can be bought and sold on a stock exchange.

Growth stocks

These are stocks in companies that are considered to be “growing”. These companies may be delivering new products and services, or entering new markets.

Over-The-Counter (OTC)

A security that is sold outside of an exchange.

Conventional gilts

Gilts where the dividends and principal repayments are fixed in nominal terms. This is as opposed to an index-linked gilt where the dividends and principal repayments are related to movements in the Retail Prices Index (RPI).

Compare plans