What does the term 'yield to maturity' refer to?

'Yield to maturity' refers to the total earnings an investor can expect from a bond if it is held until it matures. This metric takes into account not only the bond's current market price and its face value but also the coupon payments that will be received throughout the bond's life. It essentially conveys the long-term yield an investor can expect, providing a comprehensive view of the bond's potential profitability.

This calculation considers all cash flows associated with the bond, including the interest payments and any capital gain or loss incurred if the bond is purchased at a price different from its face value. Yield to maturity is a powerful tool for comparing the long-term value of different bonds, emphasizing its importance for investors looking to make informed decisions regarding fixed-income investments.

The other options relate to different aspects of investing: the annual return on a stock investment focuses on equity rather than fixed income, the interest rate on a company's loans does not pertain specifically to bond yields, and the market price of a bond describes its trading value rather than the yield itself. Thus, the correct understanding of yield to maturity directly reflects its definition and calculation in relation to bonds.