Yield to maturity (YTM) is the total expected return on a bond if it is held until it matures. Expressed as an annual percentage, YTM reflects the bond's current market price, par value, coupon interest rate, and time remaining until maturity. It is a key measure for investors, as it provides a comprehensive view of a bond's potential return, allowing for better investment decisions.
Yield to maturity is primarily used in the context of investment and finance law. It plays a significant role in securities regulation and compliance, particularly in bond markets. Legal professionals may encounter YTM when advising clients on investment strategies, evaluating bond offerings, or assessing compliance with financial regulations. Users can manage related documents, such as bond purchase agreements, using templates available through US Legal Forms.
Here are a couple of examples of abatement:
For instance, if a bond with a par value of $1,000 has a coupon rate of 5% and is currently priced at $950, the YTM would be higher than 5% due to the discount price. This indicates a greater return for the investor who holds the bond to maturity.
(hypothetical example) A bond purchased for $1,200 with a par value of $1,000 and a coupon rate of 4% may have a YTM of less than 4%, as it is trading at a premium.
| Term | Definition | Key Difference |
|---|---|---|
| Current Yield | The annual income from a bond divided by its current market price. | Current yield does not account for capital gains or losses at maturity, while YTM does. |
| Yield Spread | The difference in yield between two different bonds or bond types. | Yield spread compares different bonds, whereas YTM focuses on a single bond's return. |
If you're considering investing in bonds, it's essential to calculate the yield to maturity to understand the potential returns. You can use financial calculators or bond yield tables for approximate calculations. For more precise calculations, consider consulting a financial advisor or using US Legal Forms' templates for investment documents to ensure compliance and clarity in your transactions.
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YTM accounts for the total return of a bond if held to maturity, while current yield only considers the income based on the bond's current price.