What does yield to maturity (YTM) represent in bond investments?

Yield to maturity (YTM) is a crucial concept in bond investments, representing the total return an investor can expect to earn if the bond is held until it matures. This measure takes into account not only the bond's current market price but also the total interest payments (coupon payments) that will be received throughout the bond's remaining life and the difference between the purchase price and the face value at maturity.

In essence, YTM is expressed as an annualized rate and reflects the time value of money, recognizing that cash flows received in the future are worth less than cash flows received today. By estimating the yield to maturity, investors can effectively compare the potential returns from a bond to other investment opportunities, aiding in their decision-making process.

The other options do not encompass the comprehensive nature of YTM. While the annual interest payment is indeed part of the yield calculation, it does not capture the total expected return including price appreciation or depreciation upon maturity. Similarly, the current market price of a bond is a snapshot of its value at a specific time, but it neither reflects the overall return nor accounts for the timeline of cash flows. Lastly, while risk is an important consideration in bond investment, YTM does not explicitly measure returns relative to risk; it