Yield to maturity — Accounting glossary

Yield to maturity is the internal rate of return on a bond if its contractual interest and redemption payments occur as assumed and it is held to maturity. Its calculation uses the purchase price, coupon amounts, payment dates and redemption proceeds; quote and compounding conventions matter. It is different from coupon rate and current interest divided by price. The calculation does not guarantee the issuer will pay, nor the actual realised return if coupons are reinvested at a different rate or the bond is sold early.

Worked example

A bond costs $100 and promises one payment of $108 in one year, including principal and interest. Its one-year yield to maturity is $108/$100 − 1 = 8%, assuming the promised payment is made.

Common mistake

Using the coupon rate as yield without considering market price and redemption, or treating promised yield as a guaranteed realised return.

Where it appears in your exams

Qualification	Exam	Relationship	Period
ACCA	AFM	Supporting	September 2026–June 2027
ACCA	FM	Supporting	September 2026–June 2027