AP MacroeconomicsFinancial Markets & Investing
Yield to Maturity (YTM)
Yield to maturity (YTM) is the total annual return an investor earns if a bond is bought at its current price and held until it matures.
YTM accounts for the purchase price, all coupon payments, and the face value repaid at maturity — so it reflects price gains or losses, unlike the fixed coupon rate. If a bond trades below face value, its YTM exceeds the coupon rate; if it trades above face value (at a premium), YTM is below the coupon rate. YTM and bond price move inversely.
Formula / Example
If price < face value → YTM > coupon rate; if price > face value → YTM < coupon rate