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 percentage rate and considers both current yield and any capital gain or loss.

2. How Does the Calculator Work?

The calculator uses the YTM approximation formula:

Where:

• \( C \) — Annual coupon payment (USD)
• \( F \) — Face value of the bond (USD)
• \( P \) — Current price of the bond (USD)
• \( n \) — Years to maturity

Explanation: The numerator represents the average annual return (coupon plus amortization of discount/premium), while the denominator represents the average investment value.

3. Importance of YTM Calculation

Details: YTM is crucial for comparing bonds with different maturities and coupon rates. It helps investors assess the true return potential of fixed-income investments.

4. Using the Calculator

Tips: Enter all values in USD. For zero-coupon bonds, set coupon payment to 0. Years to maturity can be fractional (e.g., 2.5 years).

5. Frequently Asked Questions (FAQ)

Q1: How accurate is this approximation?
A: The approximation works best for bonds priced near par value. For deep discount or premium bonds, more precise methods (like trial-and-error) may be needed.

Q2: What's the difference between YTM and current yield?
A: Current yield only considers coupon payments relative to price, while YTM also accounts for capital gains/losses if held to maturity.

Q3: Does this work for callable bonds?
A: No, this calculator assumes the bond will be held to maturity. For callable bonds, yield-to-call would be more appropriate.

Q4: How does YTM relate to bond prices?
A: YTM and bond prices have an inverse relationship - when YTM rises, bond prices fall, and vice versa.

Q5: What if my bond pays semiannual coupons?
A: For semiannual bonds, double the annual coupon payment and halve the YTM result for comparison with annual bonds.