Yield to Maturtity (YTM) Calculator
Enter the key figures
0
This page has a bond yield to maturity calculator that lets you calculate the internal rate of return (IRR) on a given bond automatically. The calculator simply assumes that an investor will reinvest the coupons immediately aswell as hold until maturity.
Furthermore it assumes all of the payments will be done on schedule. The approximate yield to maturity calculation and an explanation of how to determine or estimate the actual yield to maturity are also included on this page.
This calculator does not us the approximation method like other calculators do but it uses the most accurate method, which we will explain below.
How to find YTM and the YTM formula
Yield to Maturity (YTM) is a crucial concept in bond investment, representing the total return anticipated on a bond held until maturity. There are two approaches to calculate YTM: an estimated formula for quick approximation and a precise formula for exact figure. For example, with the approximated formula a bond with a current price of $920, a par value of $1000, 10 years to maturity, and a 10% annual coupon rate yields an estimated YTM of 11.25% using this approximation.
On the other hand, the precise YTM calculation involves a more complex iterative process that accounts for the present value of all future coupon payments and the bond's face value at maturity, effectively treating the YTM as the internal rate of return (IRR) on the bond investment. This method requires solving for the rate that equates the bond's current price to the sum of all future discounted cash flows. For instance, the exact YTM might be found to be 11.359% for a bond, slightly higher than the estimated figure due to the detailed consideration of reinvestment rates and timing of cash flows. The precise formula is essential for accurate valuation and investment decision-making, especially in professional settings where slight differences in yield calculations can significantly impact investment outcomes.
