1. What is Yield To Maturity?

Yield To Maturity (YTM) is the total return anticipated on a bond if held until it matures. It's expressed as an annual percentage rate and considers both current yield and any capital gains or losses.

2. How Does the Calculator Work?

The calculator uses the YTM approximation formula:

Where:

• \( Coupon \) — Annual coupon payment (currency)
• \( Face \) — Face value of the bond (currency)
• \( Price \) — Current market price of the bond (currency)
• \( Years \) — Years remaining until maturity (years)

Explanation: The formula approximates the annual return by considering both the coupon payments and the capital gain/loss if held to maturity, divided by the average investment.

3. Importance of YTM Calculation

Details: YTM is crucial for comparing bonds with different maturities and coupon rates. It helps investors assess the true return potential of fixed-income investments.

4. Using the Calculator

Tips: Enter all values in the same currency. For zero-coupon bonds, set coupon payment to 0. Years can include decimals (e.g., 2.5 years).

5. Frequently Asked Questions (FAQ)

Q1: How accurate is this approximation?
A: It works best for bonds priced near face value. For deep discounts or premiums, more complex calculations are needed.

Q2: What's the difference between YTM and current yield?
A: Current yield only considers coupon payments relative to price, while YTM includes capital gains/losses.

Q3: Why does YTM change when bond prices change?
A: YTM moves inversely with price - as prices fall, YTM rises, and vice versa.

Q4: Can YTM be negative?
A: Yes, in rare cases where investors are willing to pay more than future cash flows.

Q5: How does YTM relate to coupon rate?
A: When price = face value, YTM = coupon rate. When price < face, YTM > coupon rate, and vice versa.