Identification

• Yield is defined as the potential return on a bond. All bonds have a stated yield, but over the life of a bond, its value fluctuates based on current interest rates, the length of its maturity and the bond's price. Yield to maturity uses all the components of the bond to come up with a yield that reflects its current value.
  
  

Features

• It doesn't matter if the yield to maturity is high or low: All investors who own the bond get the same coupon rate the bond offers. The yield to maturity is simply the overall rate of return of the investment based on the current value.
  
  

Value

• The par value for most bonds is $1,000, as of October 2010. If the current price of the bond is higher than par, the yield to maturity will be lower because the bond is being bought for a premium. If the bond is selling for less than $1,000, the yield to maturity will be higher because the bond is being bought for a discount. The issuer will make interest payments on the bond and when it matures return the initial $1,000 to the bondholder.
  
  

Results

• The yield to maturity will give you a good idea of what your total return on a bond will be if you held it to maturity. For instance, if you buy a bond at a discount, it could mean receiving lower interest payments during the life of the bond yet getting a higher overall yield when the bond is redeemed.
  
  

Considerations

• Yield to maturity assumes the investor will hold the bond to maturity and reinvest the interest payments received at the same yield-to-maturity rate.