Bond Yield To Maturity Calculator

YTM Formula:

\[ P = \sum_{t=1}^{n} \frac{C}{(1 + YTM / m)^t} + \frac{F}{(1 + YTM / m)^n} \]

Bond Price (P):

currency units

Periodic Coupon Payment (C):

currency units

Face Value (F):

currency units

Payments Per Year (m):

Years to Maturity:

years

Yield to Maturity (YTM):

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1. What is Yield to Maturity (YTM)?

Yield to Maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. It represents the internal rate of return (IRR) of a bond, considering all coupon payments and the difference between the bond's current market price and its face value.

2. How Does the Calculator Work?

The calculator uses the YTM formula:

\[ P = \sum_{t=1}^{n} \frac{C}{(1 + YTM / m)^t} + \frac{F}{(1 + YTM / m)^n} \]

Where:

\( P \) — Current bond price
\( C \) — Periodic coupon payment
\( F \) — Face value of the bond
\( m \) — Number of payments per year
\( n \) — Total number of periods (years × m)
\( t \) — Period number
\( YTM \) — Yield to maturity (annual rate)

Explanation: The equation solves for the discount rate that equates the present value of all future cash flows (coupon payments and face value) to the bond's current market price.

3. Importance of YTM Calculation

Details: YTM is a crucial metric for bond investors as it allows comparison between different bonds with varying coupon rates, maturities, and prices. It helps investors assess the true return on their bond investments and make informed decisions.

4. Using the Calculator

Tips: Enter the bond's current market price, periodic coupon payment, face value, number of payments per year, and years to maturity. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between YTM and current yield?
A: Current yield only considers the annual coupon payments relative to the bond price, while YTM considers all cash flows including the final principal repayment.

Q2: Does YTM assume reinvestment of coupons?
A: Yes, YTM assumes that all coupon payments are reinvested at the same rate as the YTM itself.

Q3: What does a YTM higher than the coupon rate indicate?
A: This typically means the bond is selling at a discount to its face value, offering higher returns to compensate for perceived risk.

Q4: How does YTM change with market interest rates?
A: When market rates rise, bond prices fall, causing YTM to increase. Conversely, when rates fall, bond prices rise and YTM decreases.

Q5: Is YTM guaranteed for bond investors?
A: No, YTM is only realized if the bond is held to maturity and all coupon payments are reinvested at the calculated YTM rate.