Yield to Maturity (YTM) of a Bond

The yield to maturity (YTM) of a bond is the rate of return earned by an investor if he holds the bond till maturity. It is the overall return earned by the investor who purchases the bond at the market price and holds it till maturity.

It is the internal rate of return of the bond. The calculation assumes that all the cash flows from the bond are discounted at the same rate, and also reinvested at the same rate.

The YTM can be calculated from the bond pricing formula, using the trial and error technique.

$V= \sum_{t=1}^{n}\frac{C}{\left ( 1+i \right )^{n}}+\frac{P}{\left( 1+i \right )^{n}}$