Home
Back
YTM Formula:
| From: | To: |
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.
The calculator uses the YTM approximation formula:
Where:
Explanation: The numerator represents the average annual return (coupon plus amortized discount/premium), while the denominator represents the average investment over the bond's life.
Details: YTM is a critical measure for bond investors as it allows comparison between bonds with different maturities, coupons, and prices. It represents the expected annual return if the bond is held to maturity and all payments are made as scheduled.
Tips: Enter the bond's annual coupon payment, face value, current market price, and years remaining until maturity. All values must be positive numbers.
Q1: Is this the exact YTM calculation?
A: This is an approximation. The exact YTM requires solving a complex equation iteratively, but this formula provides a close estimate for most purposes.
Q2: How does YTM differ from current yield?
A: Current yield only considers the coupon payments relative to the price, while YTM also accounts for any capital gain or loss at maturity.
Q3: What does a YTM higher than the coupon rate indicate?
A: This typically means the bond is selling at a discount (price below face value), as the investor will receive both the coupon payments and a capital gain at maturity.
Q4: Why might YTM not be achieved in reality?
A: YTM assumes all coupon payments are reinvested at the same rate and that the bond is held to maturity. Market changes and early redemption can affect actual returns.
Q5: How does YTM relate to bond prices?
A: Bond prices and YTM have an inverse relationship - when YTM rises, bond prices fall, and vice versa.