Yield to maturity (YTM) is a measure of the total return you can expect to receive from a __bond__ if you hold it until it matures. It takes into account the bond's current market price, its face value (the amount you'll get back when it matures), the __coupon__ payments you'll receive along the way, and the time remaining until maturity.

Let's say you have a __bond__ that you bought for $1,000, and it will mature in 5 years. Each year, it pays you $50 as interest (we'll call this the coupon payment). At the end of the 5 years, you'll get back your initial investment of $1,000.

To calculate the yield to maturity, you would need to consider the total amount you'll receive over the 5 years compared to what you initially paid. Let's do the math:

You'll receive $50 every year for 5 years, which totals $250 in

__coupon__payments. At the end of the 5 years, you'll also get back your initial investment of $1,000.

So, the total amount you'll receive is $1,000 (initial investment) + $250 (coupon payments) = $1,250.

Now, we need to compare this $1,250 to what you initially paid for the __bond__, which was $1,000.

The yield to maturity would be the annual rate of return that makes the present value of all these cash flows equal to the bond's price ($1,000). Let's imagine, for easy math, that this comes out to be 5%.

In simple terms, yield to maturity is like knowing how much money you'll make each year if you buy a special type of IOU (bond) and keep it until it's time to get your money back. It's like if you loaned $1,000 to someone who pays you $50 every year for 5 years and then gives you back your $1,000 at the end. The yield to maturity tells you how much interest you're getting on that loan each year, which is about 5% in this example.

## Comments