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 all future cash flows (coupon payments and face value) discounted at the current bond price.

2. How Does the Calculator Work?

The calculator uses the YTM formula:

Where:

• \( C \) — Coupon payment
• \( F \) — Face value
• \( n \) — Number of periods to maturity
• \( YTM \) — Yield to Maturity (per period)

Explanation: The calculator solves this equation iteratively to find the YTM that equates the present value of all future cash flows to the current bond price.

3. Importance of YTM Calculation

Details: YTM is a critical measure for bond investors as it allows comparison between bonds with different maturities, coupon rates, and prices. It represents the annualized return if held to maturity and all payments are made as scheduled.

4. Using the Calculator

Tips: Enter the bond's current market price, face value, coupon rate (annual percentage), years to maturity, and coupon payment frequency. 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 coupons and capital gain/loss at maturity.

Q2: Why does YTM change when bond price changes?
A: YTM is inversely related to price - when bond prices fall, YTM rises, and vice versa, all else being equal.

Q3: What assumptions does YTM make?
A: YTM assumes all coupons are reinvested at the same rate and the bond is held to maturity with no default.

Q4: How does coupon frequency affect YTM?
A: More frequent coupon payments (e.g., semi-annual vs annual) result in slightly higher effective annual yield due to compounding.

Q5: Can YTM be negative?
A: Yes, in rare cases when bond prices are extremely high (usually due to very low or negative interest rates).