4. What is Yield?
Yield is different from the total return. Yield is a complete measure of return of an
investment as it includes all cash flows from an investment. It can be calculated based on
cost and current price.
5. What is Yield To Maturity?
YTM is nothing but the internal rate of return (IRR) of a bond. However,
the investment must be held until maturity, and all the proceeds must
be reinvested at a constant rate.
Yield to maturity (YTM) is the total expected return for an investor if
the bond is held to maturity.
6. Time to maturity
Maturity is the duration or date when a bond’s
principal amount is repaid with interest.
For example, a 10-year government bond
matures in 10 years. The bondholder receives
the principal amount along with interest at that
time.
Most commonly, maturity is referred to as time
to maturity. This depicts the amount of time
between now and the bond maturity date
7. Terms Related to YTM
Following are few important terms in yield to maturity formula
• Face value/ Par value
• Present value/ Market value
• Coupon rate
• Interest rate
• Discount and Premium
• Time to maturity