

Yield to MaturityThe yield to maturity on a bond is the rate of return that an investor would earn if he bought the bond at its current market price and held it until maturity. It represents the discount rate which equates the discounted value of a bond's future cash flows to its current market price. This is illustrated by the following equation: where
The yield to maturity usually cannot be solved for directly. It generally must be determined using trial and error or an iterative technique. Fortunately, financial calculators make the task of solving for the yield to maturity quite simple.
© 2002  2010 by Mark A. Lane, Ph.D.
