What does Yield to Maturity (YTM) refer to?

Yield to Maturity (YTM) is an important concept in the bond market, representing the total return an investor can expect to earn if a bond is held until it matures. This metric takes into account not just the bond's current market price, but also the total interest payments that will be received throughout the bond's life and any capital gains or losses that may result from holding the bond until its maturity date.

YTM is expressed as an annual percentage, summing up the annual coupon payments and any difference between the purchase price and the par value of the bond, then annualizing this total to give a clear picture of the expected return over the bond's term. This makes it a comprehensive measure for investors to evaluate the profitability and attractiveness of bond investments compared to other securities.

The other options don’t accurately describe YTM. The initial investment return on a stock focuses on equity investments rather than bonds, while total dividends relate to stocks and earnings per share are more pertinent to equity analysis. These distinctions clarify why the correct understanding of YTM specifically pertains to bond investments and their potential returns when held until maturity.