Yield to Maturity (YTM) consolidates all investment elements into a single annual rate: the purchase price, all future coupon payments, and principal repayment at maturity. It is the only correct measure for comparing bond issues.
Coupon rate is unsuitable for such comparison. A 22% coupon bond purchased at 105% of par may yield less than an 18% coupon bond purchased at 95%. The difference between purchase price and par value is distributed over the remaining term and contributes to the final result along with coupons.
Three metrics should be distinguished: coupon yield is calculated from par value, current yield from purchase price accounting only for coupons, and yield to maturity also factors in the difference between price and par value over time. When purchased at par, all three coincide; at any other price, they diverge.
A limitation of this metric lies in its assumption: it presumes each coupon received will be reinvested at the same rate until maturity. In practice, rates change, so actual results differ from calculated ones. Additionally, yield to maturity does not account for default risk—a high value for a weak issuer's bond reflects the market-required risk premium rather than profit.