How is total return on bond different from its yield to maturity? My understanding is that total return is the return from the date of purchase to date of sale (which can be before its maturity date). Whereas YTM is the return if the bond is held upto maturity and coupons are reinvested at YTM. Is that correct?
Sounds right. Total return can be different than YTM if you aren’t reinvesting at the YTM rate.
Thats right. YTM considers FV of coupons at YTM rate. It can be more or less. If interest rates rise after you purchase the bond and if you hold it till maturity, cash flows will be the same with a higher return on C re-investments. So total return will be > YTM