How to Calculate Bond Yield to Maturity
What is Bond Yield to Maturity?
Yield to Maturity (YTM) is the internal rate of return on a bond held to maturity. It's the discount rate where the present value of all future cashflows equals the bond's current price.
Formula
YTM solves: Bond Price = Σ[Coupon / (1+YTM)ⁿ] + Par / (1+YTM)ⁿ
Step-by-Step Guide
- 1Enter bond price, par value, coupon rate, years to maturity
- 2Use iterative methods (Newton-Raphson) to solve for YTM
- 3Result approximates annual return to maturity
Worked Examples
Input
Price: $950, Par: $1000, Coupon: 5%, Years: 10
Result
YTM ≈ 5.45%
Bond trading at discount
Common Mistakes to Avoid
- ✕Confusing YTM with current yield
- ✕Not assuming reinvestment of coupons
Ready to calculate? Try the free Bond Yield to Maturity Calculator
Try it yourself →