How is the yield to maturity on a bond defined?

Yield to maturity (YTM) is defined as the total expected return on a bond if it is held until its maturity date. This concept includes all the coupon payments received throughout the life of the bond as well as any capital gain or loss realized when the bond matures and the investment is returned at its face value. Essentially, YTM provides a comprehensive assessment that reflects the bond's overall income potential, taking into account the timing of all cash flows and the time value of money.

This definition highlights the bondholder's perspective, where YTM acts as a measure of the bond's profitability based on the current purchase price in relation to the future cash flows that the bond will generate. It offers a way for investors to compare the yield of bonds with different prices, maturities, and coupon rates, making it a crucial tool for making informed investment decisions regarding fixed-income securities.

In contrast, the other options do not encompass the full scope of what yield to maturity represents. While the total interest earned over the life of the bond relates to cash flows, it does not factor in the time value of money or capital gains/losses. The risk premium pertains more to the relative risk of the bond in comparison to a risk-free investment and is not a