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 the internal rate of return (IRR) of an investment in a bond, considering all coupon payments and the difference between purchase price and face value.

2. How Does the Calculator Work?

The calculator solves the YTM equation:

Where:

• \( Price \) — Current market price of the bond
• \( C \) — Coupon payment amount
• \( F \) — Face value of the bond
• \( t \) — Time period for each coupon payment
• \( n \) — Total number of periods until maturity
• \( r \) — Yield to Maturity (YTM)

Explanation: The equation calculates the discount rate that equates the present value of all future cash flows to the bond's current price.

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 on bond investments and make informed decisions.

4. Using the Calculator

Tips: Enter the bond's current market price, coupon payment amount, face value, number of coupon periods, and total periods until maturity. 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 accounts for all cash flows including principal repayment.

Q2: Why is YTM important for bond investors?
A: YTM allows comparison between bonds with different prices, coupons, and maturities on an equal basis.

Q3: What assumptions does YTM make?
A: YTM assumes all coupon payments are reinvested at the same rate and the bond is held to maturity.

Q4: How does YTM relate to bond prices?
A: Bond prices and YTM have an inverse relationship - when YTM rises, bond prices fall, and vice versa.

Q5: What does a higher YTM indicate?
A: Higher YTM typically indicates higher risk, as investors demand greater return for taking on more risk.