YTM and Reinvestment Risk

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Yield to maturity calculates the total return an investor would earn by holding the bond till maturity. This includes both the coupon income and the capital gains from the bond. It also considers reinvestment income, however, with the assumption that coupon payments can be invested at the same rate as YTM. This means that you will actually earn a yield equal to YTM, even if you hold the bond to maturity, only if you are able to reinvest all the coupon payment at the YTM until the maturity of the bond. This is very unlikely and that's why we have reinvestment risk.

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