Yield to maturity accounts for the present value of a bond’s future coupon payments. In other words, it factors in the time value of money, whereas a simple current yield calculation does not.
May 26 2014 08:39 PM
An approximate YTM can be found by using a bond yield table. However, because calculating a bond's YTM is complex and involves trial and error (guessing and checking), it is usually done by using a business or financial calculator or a computer program.
YTM is the interest rate an investor would earn by investing every coupon payment from the bond at a constant interest rate until the bond’s maturity date. The present value of all of these future cash flows equals the bond’s market price.