Enter the annual interest payment, face value, current price, and years to maturity of a bond. The calculator will evaluate and display the yield to maturity.

Yield to Maturity Formula

The following formula is used to calculate the yield to maturity of a bond or investment.

YTM = [ (AIP) + ( (FV – CP) / (Y) ) ]/ [( FV + CP ) / 2 ]
• Where YTM is the yield to maturity
• AIP is the annual interest payment
• FV is the face value
• CP is the current price
• Y is the years to maturity

Yield To Maturity Definition

Yield to Maturity (YTM) is a concept in investing that helps determine the potential return of a fixed-income security, such as bonds or notes, over its entire lifespan.

It represents the total annualized return an investor can expect to earn from holding the security until its maturity date, considering both the periodic coupon payments and the final principal repayment.

YTM is calculated by incorporating various factors, including the bond’s current market price, face value, coupon rate, and time remaining until maturity.

It reflects the yield an investor would receive if they purchased the bond at its current price and held it until maturity, assuming all coupon payments are reinvested at the same YTM.

It helps investors compare and analyze different bonds with varying coupon rates, maturities, and market prices. By evaluating the YTM, investors can decide which bonds offer the most attractive returns and align with their investment objectives.

Yield To Maturity Example

How to calculate a yield to maturity?

1. First, determine the annual interest payment.

Calculate the total annual interest payment.

2. Next, determine the face value.

Calculate the face value of the bond.

3. Next, determine the current price.

Calculate the current price of the bond on the market.

4. Next, determine the years to maturity.

Measure the number of years remaining until maturity.

5. Finally, calculate the yield to maturity.

Calculate the yield to maturity using the formula above.

FAQ

What is yield to maturity?

A yield to maturity is a total value a bond must achieve in order to reach maturity.