Bond Calculator

About Yield to Maturity

The Bond Calculator helps you estimate the yield to maturity (YTM) of a bond. It considers the face value, coupon rate, time to maturity, payment frequency, and current market price to compute the annualized return if the bond is held to maturity, assuming reinvestment of coupons at the YTM rate.

How It’s Calculated

The yield to maturity (YTM) is the internal rate of return (r) that equates the present value of the bond's cash flows to its current market price: Price = Σ [Coupon / (1 + r/n)^t] + Face Value / (1 + r/n)^(n*Years), where Coupon = (Face Value * Coupon Rate) / n, n is the payment frequency per year, and t ranges from 1 to n*Years. The YTM is solved numerically using the bisection method.

Key Insights

• •YTM provides a comprehensive measure of a bond's expected return, accounting for coupon payments, face value redemption, and any capital gain or loss.
• •Bonds trading below face value (discount) have YTM higher than the coupon rate, while those above (premium) have lower YTM.
• •Longer maturity bonds are more sensitive to changes in interest rates, affecting their prices and YTMs more significantly.
• •Higher payment frequency (e.g., semi-annual vs. annual) can lead to slightly higher effective yields due to more frequent compounding.