What is YTM? What is the difference between YTM and Current Yield?
YTM stands for Yield To Maturity – the calculated return on investment that an investor will get by holding the bond to maturity. It takes into account the present value of all future cash flows, as well as any premium or discount to par that the investor pays. Current yield is the rate of return an investor will get, without taking into account the value of the premium or discount of the purchase price. It is calculated by dividing the coupon by the price. The current yield is not a good indication of your return on investment. Yield to maturity takes into account the value of the discount or premium paid for the bond, and as such it offers a much better indication of the value of the bond.
