Yield to maturity (YTM) is the internal rate of return (IRR) that an investor would earn if they held a securitisation until it matures. Yield to maturity is sometimes referred to as "yield to redemption".
YTM is calculated by discounting all of the future cash flows from the securitisation back to the present day. The discount rate used is the market yield on similar securities.
YTM is a valuable tool for investors because it allows them to compare the returns on different securitisations. It can also be used to determine the price that an investor should pay for a securitisation.
Here are some of the applications of YTM in securitisation:
- To compare the returns on different securitisations: YTM can be used to compare the returns on different securitisations. This is important for investors because it allows them to choose the securitisation that will provide them with the best return.
- To determine the price that an investor should pay for a securitisation: YTM can be used to determine the price that an investor should pay for a securitisation. This is important for investors because it allows them to ensure that they are not overpaying for the securitisation.
- To manage the risk of the securitisation: YTM can be used to manage the risk of the securitisation. For example, if the YTM is too low, then the securitisation is more likely to default.
YTM is a valuable tool for securitisation investors. It can be used to compare the returns on different securitisations, determine the price that an investor should pay for a securitisation, and manage the risk of the securitisation.