Yield to Maturity Calculator

A yield to maturity calculator converts the price of a bond into an important figure that you can use to compare it with other fixed-income investments: It's the annualized rate of return you'll earn if you buy a bond today and hold it until its maturity date. Enter the face value, interest rate, time remaining until maturity, and the price you're willing to pay, and the calculator will compute the yield to maturity. If you leave the price blank, the calculator will instead calculate the price of a bond based on your desired yield.

What is the yield to maturity?

Yield to maturity (YTM) is the total return per year that a bond will provide if held until the maturity date and reinvesting interest payments at the same rate. It combines two types of income into one figure: the interest paid during the life of the bond, plus any gain or loss from the difference between what you pay today and the face value you get back when it matures.

Since the YTM takes into account both components, it can be considered a type of internal rate of return in the bond market. It is the only discount rate that will set the present value of all future interest payments and principal equal to the current price of the bond. For a bond purchased below par, the yield will be higher than the coupon rate; for one purchased above par, the yield will be lower than the coupon rate.

How to use this calculator:

First enter four pieces of information about the bond: the face value that will be paid at maturity, the annual interest rate, the remaining time until maturity and how often interest is paid. Most bonds pay interest twice a year so this should be left as standard. Enter the market price you are willing to pay, leave the field for yield to maturity blank, and the calculator will calculate the yield.

The calculator can also be used for the reverse calculations. If you leave the market price blank and enter your desired yield it will return the fair price that would give you that yield. By activating the "desired yield" option, you can discount the cash flows by your own minimum required rate of return to determine the net present value (NPV). If you activate the "redeemable bonds" option and enter the redemption amount and date, the calculator will also calculate the yield at redemption and the maximum yield.

Understanding of formula:

The price of a bond is the present value of its cash flows: an interest payment each period plus the principal repayment at maturity. If we use the effective interest rate as our discount rate, then the formula becomes:

P is the price, F is the face value, C is the interest amount per period, m is the number of interest payments per year, N is the total number of periods and y is the annualized effective rate. As y cannot be solved directly, the calculator solves for a rate that makes both sides of the equation equal, similar to how bond trading systems work.

If you only need a quick estimate, then you can use this approximation formula:

Suppose a bond has a par value of $1,000, an interest rate of 6% paid semi-annually, 10 years until maturity and is currently trading at a price of $950. The annual interest payment would be $60, the discount on the par value would be $50 spread over 10 years. So the estimated yield would be (60 + 5) / 975, which is approximately 6.7%. The exact yield calculated by a calculator will be close to this value, around 6.68%. This bond has a higher yield than the interest rate of 6% because it was purchased at a discount.

The table below lists the different input parameters and their example values.

Yield To Maturity, Current Yield and Redemption Yield

The yield to maturity is not the only rate of return quoted. The current yield is simpler: it's calculated by dividing the annual interest payment by the price you paid, without taking into account any gains or losses at maturity. It reflects income at a given point in time and does not represent total return. Therefore, for discount bonds, it will be between the coupon rate and the yield to maturity.

Many bonds can be purchased back by the issuer before maturity at a predetermined redemption price. For such bonds, the calculation of the return is similar but takes into account the date and price at which the bond will be redeemed. The worst possible yield is then the lower of the "Yield to Maturity" and the lowest possible redemption value. This is something that conservative investors should take into account when planning their investments as the issuer can redeem the bonds if it becomes disadvantageous for you.

Use of "Yield to Maturity"

Yield to maturity is a common metric used to compare bonds with different coupon rates, prices and maturities. Two bonds with very different coupon rates can be compared only by their yields. This is why it affects almost every buy or sell decision in fixed income securities. When combined with the net present value option, it can be used to determine whether a bond will meet your own yield expectations: A positive net present value means that the yield will exceed your minimum required return, while a negative net present value means the opposite.

Reading results note:

Please note that the yield to maturity (YTM) assumes you reinvest each interest coupon at the same rate and hold the bond until maturity. If rates change or you sell the bond early, your actual return may differ. Make sure the frequency of interest payments matches the bond as semi-annual and annual compounding can result in slightly different effective yields. For bonds with call options, make sure to plan for the worst-case scenario and not just rely on the attractive YTM.

This calculator is for educational and planning purposes only and does not constitute financial advice. Bond prices and yields can change due to changes in interest rates and credit risk, and your own results will depend on the timing of when you buy, sell and reinvest. You should consult a qualified professional before making any investment decisions.