Yield to maturity

Indicator characterizing the rate of return from bond investments, on condition of their purchase before redemption. Usually is denoted in % p.a. Yield to maturity can be calculated with regards to re-investment of coupon payments in the course of the year (effective yield), as well as without it (par yield, simple yield). It is important to note that yield to maturity is only an ESTIMATE of what yield the investor would get buying the particular bond, as calculation of the yield to maturity implies re-investment of coupons at the same interest rate. In reality such an assumption could not be realized, so the actual yield will be different from the estimated yield to maturity. Nevertheless, yield to maturity is one of the most widely used methods of bond estimation.