Treasury 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):

USD

Periodic Coupon Payment (C):

USD

Face Value (F):

USD

Payments Per Year (m):

Total Number of Periods (n):

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:

\( P \) — Bond price (USD)
\( C \) — Periodic coupon payment (USD)
\( F \) — Face value (USD)
\( m \) — Payments per year (unitless)
\( t \) — Period number (unitless)
\( n \) — Total number of periods = years × m (unitless)
\( YTM \) — Yield to maturity (decimal)

Explanation: The equation calculates 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 critical measure 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 bond price in USD, periodic coupon payment in USD, face value in USD, number of payments per year, and total number of periods. 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 annual coupon payments relative to current price, while YTM considers all future cash flows including the face value at maturity.

Q2: How does bond price affect YTM?
A: When bond price is below face value (discount bond), YTM is higher than coupon rate. When price is above face value (premium bond), YTM is lower than coupon rate.

Q3: What assumptions does YTM make?
A: YTM assumes all coupon payments are reinvested at the same rate as the YTM and that the bond is held to maturity.

Q4: Why is YTM important for treasury bonds?
A: YTM allows investors to compare treasury bonds with different maturities and coupon rates on an equal basis, helping them choose the most suitable investments for their portfolios.

Q5: Can YTM be negative?
A: While rare, YTM can be negative for bonds trading at significant premiums or in extraordinary market conditions where investors are willing to accept negative returns for safety.