Yield to Maturity (YTM)
The annualized return if you hold the bond to maturity, assuming all coupons are reinvested at the same rate.
Yield to maturity (YTM) is the bond's internal rate of return — the single discount rate that makes the present value of all future cash flows (coupons and principal) equal the bond's dirty price. Think of it as the bond's 'all-in' yield, but with an important catch: YTM assumes you can reinvest every coupon payment at the same YTM rate, which rarely happens in practice. Because YTM appears inside the discounting formula, there's no closed-form solution — it's solved numerically using methods like Newton-Raphson or bisection, similar to IRR calculations in Excel. Despite its limitations, YTM is the industry standard for comparing bonds because it captures both income and capital gains/losses in a single number.
Formula