What is a bond’s yield to maturity (YTM)?

Yield to maturity (YTM) is defined as the total return anticipated on a bond if it is held until it matures. This calculation takes into account not just the bond's current market price and its annual coupon payments, but also any capital gain or loss that the investor will realize when the bond matures. Essentially, YTM reflects the internal rate of return (IRR) of the bond, incorporating all future cash flows, including the repayment of principal at maturity.

When determining YTM, an investor considers the timing of the cash flows, which are the periodic interest payments and the principal returned upon maturity, and calculates the yield on these cash flows in relation to the bond's current price. It is a comprehensive measure of a bond's profitability, allowing investors to compare the return on that bond against other investment options.

The other options describe elements related to bonds but do not accurately define YTM. For instance, the annual interest payment refers only to the coupon payment, which is just one component of total returns. The total market price of the bond is a snapshot of its value at a given time, and the immediate sale value of the bond pertains to its liquidity rather than its long-term return expectations. Thus, the chosen answer fully captures the