1. What is Yield to Maturity (YTM)?

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

2. How Does the Calculator Work?

The calculator solves the bond pricing equation for YTM:

Where:

• \( C \) — Annual coupon payment
• \( F \) — Face value of the bond
• \( n \) — Years to maturity
• \( r \) — Yield to Maturity (YTM)

Explanation: The equation accounts for the present value of all future cash flows (coupons and face value) discounted at the YTM rate.

3. Importance of YTM Calculation

Details: YTM is crucial for comparing bonds with different maturities and coupon rates. It helps investors assess the true return of a bond investment, accounting for time value of money.

4. Using the Calculator

Tips: Enter the bond's current market price, face value, annual coupon payment, and years remaining until 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 coupon payments relative to price, while YTM accounts for all cash flows including the face value payment at maturity.

Q2: Why does YTM change when bond price changes?
A: YTM is inversely related to bond price. When price falls, YTM rises, and vice versa, because you're paying less for the same future cash flows.

Q3: What does it mean if YTM equals coupon rate?
A: When YTM equals the coupon rate, the bond trades at par (price equals face value).

Q4: How accurate is this calculator?
A: It uses numerical methods to approximate YTM with high precision (0.00001), suitable for most investment decisions.

Q5: Can this be used for zero-coupon bonds?
A: Yes, simply enter 0 for the coupon payment. The calculation will only consider the price and face value.