1. What is Yield to Maturity?

Yield to Maturity (YTM) is the total return anticipated on a bond if held until it matures. It represents the internal rate of return (IRR) of a bond's cash flows, including coupon payments and principal repayment.

2. How Does the Calculator Work?

The calculator uses iterative approximation to solve for YTM:

Where:

• Coupon — Annual coupon payment
• Face Value — Bond's par value at maturity
• Current Price — Bond's current market price
• n — Years to maturity
• t — Time period (1 to n)

Explanation: The calculator iteratively adjusts the YTM until the net present value of all cash flows equals the bond's current market price.

3. Importance of YTM Calculation

Details: YTM is crucial for bond investors to compare different bonds, assess investment returns, and make informed decisions about bond purchases and sales in the fixed income market.

4. Using the Calculator

Tips: Enter the bond's face value, annual coupon rate, current market price, 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 annual coupon payments relative to price, while YTM includes both coupon payments and capital gains/losses.

Q2: Why does YTM change when bond prices change?
A: YTM and bond prices have an inverse relationship - when prices rise, YTM falls, and vice versa.

Q3: Is YTM guaranteed if I hold to maturity?
A: YTM assumes all coupon payments are reinvested at the same rate, which may not happen in reality.

Q4: How does YTM differ for zero-coupon bonds?
A: For zero-coupon bonds, YTM represents the annualized return from price appreciation only.

Q5: What factors affect YTM?
A: Interest rates, credit risk, time to maturity, and market demand all influence a bond's YTM.