Bond Yield to Maturity Calculator

Yield to Maturity (YTM):

\[ YTM = \text{IRR of Bond Cash Flows} \]

YTM represents the internal rate of return (IRR) of a bond if held to maturity.

Face Value:

Coupon Rate:

Current Price:

Years to Maturity:

years

Coupon Frequency:

Yield to Maturity (YTM):

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1. What is Yield to Maturity?

Yield to Maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. It's expressed as an annual rate and considers both current income from coupon payments and any capital gain or loss realized at maturity.

2. How Does the Calculator Work?

The calculator solves for YTM in the bond pricing equation:

\[ \text{Price} = \sum_{t=1}^{n} \frac{C}{(1+YTM)^t} + \frac{F}{(1+YTM)^n} \]

Where:

\( C \) — Coupon payment per period
\( F \) — Face value of the bond
\( n \) — Total number of periods until maturity
\( YTM \) — Yield to Maturity (per period)

Explanation: The calculator uses an iterative approximation method to solve this equation for YTM.

3. Importance of YTM Calculation

Details: YTM is a critical measure for bond investors as it allows comparison between bonds with different maturities and coupon rates. It represents the expected annual return if the bond is held to maturity and all payments are made as scheduled.

4. Using the Calculator

Tips: Enter the bond's face value, coupon rate (annual), current market price, years to maturity, and coupon payment frequency. The calculator will compute the annualized YTM.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between YTM and current yield?
A: Current yield only considers the coupon payments relative to the price, while YTM includes both coupon payments and any capital gain/loss at maturity.

Q2: Why does YTM change when bond price changes?
A: YTM and bond prices have an inverse relationship. When prices fall, YTM rises, and vice versa.

Q3: What does it mean if YTM equals coupon rate?
A: The bond is trading at par (price equals face value) when YTM equals the coupon rate.

Q4: How does coupon frequency affect YTM?
A: More frequent coupon payments slightly increase the effective YTM due to compounding.

Q5: Can YTM be negative?
A: Yes, in rare cases where investors are willing to accept a guaranteed loss for safety or other reasons.