# Does YTM represent interest? [closed]

Does a bond's Yield to Maturity represent the amount of interest one gets at maturity even though it's expressed as a percentage? I read that it is a rate of return on a bond at maturity, but what is the "return"?

## closed as off topic by Matt, jeff m, Karol J. Piczak, Andrew Cheong, chrisaycockJun 20 '13 at 21:49

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## 1 Answer

Simply speaking, return means relative amount of extra money earned after investing of some amount of money: Return = $\frac{Received}{Invested}-1$.

If you invested \$100 and received \$100, this means you have zero return (\$100/\$100-1).

If you invested \$100 and received \$110, your return in 10% (\$110/\$100-1 = 1.1-1 = 0.1 = 10%).

Next step is account for term in which you received this return, and here comes a concept of yearly return. Formula is $1+r_y f = 1+r$ or $r_t = r/f$, where $r_y$ is year return, $f$ is fraction of a year, and $r$ is your previously calculated absolute return.

If you earned 10% in one year, it is your yearly return.

If you earned 10% in half year, then your yearly return is 10%/0.5 = 20%.

Next step is account for Day count convention and Compounding but it would be a long story.