YTM full form refers to Yield to Maturity. It is a term closely related to bonds. In simple words, YTM means how much return we are getting from the bond when it matures. It's nothing but the rate of return earned from the bond. Yield to Maturity is referred to as redemption yield or book yield.
YTM Meaning
In simple words YTM is sum of two major things. All the interest you get from the bond. Whatever the premium or discount you get from the bond when you purchase. These sum put together called as concept Yield to Maturity.
The term YTM contains two components.
1) Yield
2) Maturity
Yield refers to interest on bonds divided by bond price.
Maturity refers to when a company issued a Bond for 10 years then maturity will be 10 years.
YTM is expressed in the annual rate.
How is YTM Calculated
Yield to Maturity is calculated by following formula
In this formula
C is Coupon Payment.
T is Years to reach maturity.
FV is Face Value of the bond.
PV is Present Value of the bond.
