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Yield to Maturity
Yield to maturity is the rate of return expected on a bond if it is held until maturity and is a key consideration when comparing bond investments. It is calculated by taking into account its coupon, current market price, redemption value, and time to maturity. The yield to maturity, expressed as an annualized rate of return, assumes all coupons from the bonds will be reinvested at the same rate. The calculation is necessarily complicated but can be done rapidly by software to allow the market to instantly compare the yield to maturity of various instruments. The principal repayment due on maturity, plus the present inflation-adjusted value of all future coupon payments should, in theory, equal the current market price of a bond.