Yield to Maturity

In finance, the yield to maturity (YTM) of a bond or other fixed interest investment vehicle indicates the total interest which that instrument will yield over its full term.

Example: You invest 10,000 francs in bond which has a credit interest rate of 1.05% per annum and a 5-year term. The bond pays out interest as coupon payments on an annual basis, so interest is not accrued or compounded.

The YTM of this bond is found by combining all of the annual interest payments to determine the total yields you will earn from the bond – in this case 525 Swiss francs (1.05% of CHF 10,000 = CHF 105 x 5).

It is important to understand the YTM applicable to bonds which you plan to invest in so that you can understand how the total return on your investment compares with that of investing through other investment vehicles.

More on this topic:
Swiss medium term note comparison

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Daniel Dreier is editor and personal finance expert at moneyland.ch.

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