Investment Glossary

The yield to maturity is the yield an investor would receive if a bond were held until maturity, and is also known as "redemption bond." It is applied to bonds and or other fixed-interest securities, and describes the internal rate of return of overall interest rate earned by an investor who buys the bond at market price and holds to maturity.

Yield to maturity is actually an estimation of future return, as the rate at which coupon payments can be reinvested when received is unknown.

A zero coupon bond, also called a discount bond, is a bond or debt security that redeems no interest and is initially sold at a discount. It is bought at a price lower than its face value, does not make periodic interest payments or other so-called "coupons" (which is where it gets its name).

When the bond reaches maturity, its investor receives its par (or face) value. Examples of zero-coupon bonds include U.S. Treasury bills, U.S. savings bonds, long-term zero-coupon bonds, and any type of coupon bond that has been stripped of its coupons.