In economics yield to maturity (Yield to Maturity: Definition) is the internal rate of return from the flows of cash of fixed income security, especially from bonds. Yield is paid if the bonds or other securities are to be held until their maturity. Yield to maturity is a measurement of the return from the bonds. Yield to maturity gives investors the opportunity to calculate the fair value of financial instruments. Yield to maturity applies exactly to a zero coupon bond. The reason is that this bond has no interest to be reinvested. Yield to maturity assumes that all interests and dividends are reinvested. It takes also into account losses and gains in case of difference between the purchase and redemption price. Economists say that yield to maturity is a projection of future performance, because yield to maturity has to assume a reinvestment and the rate of yield to maturity itself. For example, as it is mentioned in the "Yield to Maturity" (2004) article, yield to maturity is "an implicit function that can only be evaluated by the method of successive approximations". To achieve the quoted yield to maturity is easy when a zero coupon bond is to be help until maturity. Yield to maturity is mostly quoted in terms of "bond-equivalent yield". (Yield to Maturity)
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