Meaning and calculation
Yield to maturity is the calculated rate at which the present value of a bond’s scheduled cash payments equals its price. In substance, it is the internal rate of return of the specified cash flows. The calculation depends on the purchase date, coupon schedule, repayment and the chosen conventions for presenting the annual rate.
Illustrative calculation
If an illustrative bond costs 1,000 roubles and provides for one combined payment of 1,100 roubles exactly one year later, the calculated yield is 10% per year before expenses and withholdings. The example assumes the payment is made; it does not describe the probability of default.
Not a guaranteed result
Yield to maturity is not a guarantee of the actual result. Selling before maturity, non-payment, changes in expected cash flows and a different reinvestment return on coupons can change the outcome. Do not compare calculated rates without checking the price, whether accrued coupon is included and the assumptions. For securities with early redemption or complex terms, consider additional scenarios.