🏦 Bond YTM
Yield to maturity from price, coupon and term.
YTM estimates the total annualized return you'd earn on a bond if you bought it at its current price and held it until maturity, collecting all coupon payments along the way.
YTM is the discount rate that equates the bond's current price to the present value of all future coupon payments plus the face value at maturity:
Price = Σ C / (1 + y)t + F / (1 + y)T
Because this requires solving a polynomial equation, the calculator uses an iterative numerical method to converge on the correct rate y.
A bond with a face value of 1,000, a 7% annual coupon, 5 years to maturity, currently trading at 950 (a discount) will have a YTM higher than its coupon rate — since you're getting the coupon payments plus a capital gain as the price converges to face value at maturity.
Confusing coupon rate with YTM — they're only equal when a bond trades exactly at face value ('at par'). A bond trading below par always has a YTM above its coupon rate, and vice versa for a premium bond.
What it does
Solves for the yield to maturity (YTM) of a bond from its price, coupon, and remaining term — the return you earn if held to maturity.
When to use it
Use it to compare bonds trading at different prices, or to see what return a bond actually offers before you buy it.
Assumptions
- Coupons are reinvested at the YTM itself.
- The bond is held to maturity with no default.
- Coupon payments are semi-annual by default.
A discount bond's YTM exceeds its coupon; a premium bond's is lower. Compare bonds on YTM, not coupon, because price differences compensate for the coupon. Remember YTM assumes reinvestment at the same rate — real returns will differ.