Finance

Yield to Maturity Calculator

Estimate a bond's annualised yield to maturity from its coupon rate, face value, current market price, and years remaining, or calculate the fair bond price from a required yield.

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Yield to Maturity Formula

The approximate YTM formula averages the annual return from coupon income and the capital gain or loss from the price-to-par difference spread over the remaining years.

YTM ≈ [C + (F − P) / n] ÷ [(F + P) / 2]

C = annual coupon · F = face value · P = market price · n = years to maturity

Using YTM to Compare Bonds

YTM is the single most useful number for comparing bonds because it accounts for all three sources of return: coupon income, reinvestment of coupons, and capital gain or loss at maturity. Two bonds with identical coupon rates but different prices will have different YTMs, and YTM tells you which is the better deal for a given level of credit risk.

Investors typically compare a bond's YTM against a benchmark such as the yield on a Treasury bond of similar maturity to assess the risk premium being offered. A corporate bond yielding 200 basis points more than a comparable Treasury suggests the market is pricing in meaningful default risk.

Remember that YTM assumes coupons are reinvested at the same rate, which is rarely achievable in practice. The actual realised return will differ depending on where interest rates move over the holding period.

Frequently asked questions

What is yield to maturity (YTM)?
Yield to maturity is the total annualised return an investor can expect if they buy a bond at the current market price and hold it until it matures, assuming all coupon payments are reinvested at the same rate. It is expressed as a percentage and is the most commonly used measure for comparing bonds with different maturities and coupon rates.
How is YTM calculated?
The exact YTM requires solving for the discount rate that makes the present value of all future cash flows equal to the bond's current price. This calculator uses the widely used approximation formula: YTM ≈ [Annual Coupon + (Face Value − Price) / Years] ÷ [(Face Value + Price) / 2]. This gives a close estimate that is accurate enough for most practical purposes.
What is the difference between coupon rate and YTM?
The coupon rate is the fixed annual interest payment stated on the bond, expressed as a percentage of face value. YTM is the effective return considering both the coupon income and the capital gain or loss from buying at a price different from face value. If a bond is bought below par, the YTM will be higher than the coupon rate; if bought above par, YTM will be lower.
Why does bond price move inversely with interest rates?
When prevailing interest rates rise, new bonds offer higher yields, making existing lower-coupon bonds less attractive. To compensate, existing bond prices fall until their YTM matches the new market rate. Conversely, when rates fall, existing bonds with higher coupons become more valuable and their prices rise. This inverse relationship is a fundamental principle of fixed-income investing.
What does it mean when a bond trades at a discount or premium?
A bond trades at a discount when its market price is below the face value, meaning the YTM is higher than the coupon rate. This happens when market interest rates have risen since the bond was issued. A bond trades at a premium when its price exceeds face value, meaning the YTM is lower than the coupon rate, which occurs when prevailing rates have fallen.
What limitations does the approximate YTM formula have?
The approximation formula used here provides a close estimate but slightly overstates YTM for premium bonds and slightly understates it for discount bonds. For exact results, a financial calculator or iterative numerical method is required. The approximation is generally accurate to within a few basis points and is widely used in practice for quick comparisons.

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