This yield to maturity calculator is a financial tool that helps investors determine the total return anticipated on a bond if held until its maturity date.
By considering necessary elements, the YTM calculator provides a more accurate picture of a bond’s true yield, making it an invaluable asset for investors and financial analysts alike.
A bond with a face value of $1,000, a coupon rate of 5%, and 5 years until maturity, currently trading at $950. Our yield to maturity calculator would factor in these variables to compute the bond’s yield to maturity, offering investors crucial insights for decision-making.
Yield to Maturity Calculator
| Face Value | Coupon Rate | Current Price | Years to Maturity | Calculated YTM |
|---|---|---|---|---|
| $1,000 | 5% | $950 | 5 | 6.76% |
| $1,000 | 4% | $1,020 | 7 | 3.57% |
| $5,000 | 6% | $5,100 | 10 | 5.75% |
| $10,000 | 3% | $9,800 | 3 | 3.73% |
| $2,000 | 7% | $2,200 | 15 | 6.12% |
| $500 | 6% | $475 | 2 | 7.89% |
| $1,000 | 5% | $1,050 | 7 | 4.48% |
| $2,500 | 4% | $2,400 | 5 | 4.67% |
| $5,000 | 6% | $5,200 | 10 | 5.38% |
| $10,000 | 3% | $9,600 | 3 | 4.17% |
Yield to Maturity Formula
The YTM formula is:
YTM ≈ (C + (F-P)/n) / ((F+P)/2)Where:
- C = Annual coupon payment
- F = Face value
- P = Current price
- n = Number of years to maturity
How do you calculate yield to maturity?
Calculating YTM involves several steps:
Gather bond information: Collect data on the bond’s face value, coupon rate, current price, and time to maturity.
Calculate annual coupon payments: Multiply the face value by the coupon rate.
Determine the price difference: Subtract the current price from the face value.
Apply the formula: Use the simplified YTM formula or a financial calculator.
Iterate if necessary: For more precise results, use software to perform iterative calculations.
Let’s walk through an example:
Suppose we have a bond with:
- Face value: $1,000
- Coupon rate: 6%
- Current price: $950
- Years to maturity: 5
Using the formula:
YTM ≈ (60 + (1000-950)/5) / ((1000+950)/2)
≈ (60 + 10) / 975
≈ 0.0718 or 7.18%This approximation suggests a yield to maturity of about 7.18%.
What is the yield to maturity of a $1000 7% bond?
To calculate the YTM of a $1,000 bond with a 7% coupon rate, let’s assume the bond is trading at $980 and has 10 years until maturity.
Using these parameters:
- Face value (F): $1,000
- Coupon rate: 7% (Annual payment C = $70)
- Current price (P): $980
- Years to maturity (n): 10
Applying the simplified formula:
YTM ≈ (70 + (1000-980)/10) / ((1000+980)/2)
≈ (70 + 2) / 990
≈ 0.0727 or 7.27%This calculation indicates an approximate YTM of 7.27%, slightly higher than the coupon rate due to the bond trading at a discount.
How do you calculate Treasury bill yield to maturity?
Treasury bills (T-bills) are short-term government securities sold at a discount from their face value. Calculating their YTM differs slightly from regular bonds because T-bills don’t pay periodic interest. Instead, the yield comes from the difference between the purchase price and the face value at maturity.
The formula for T-bill YTM is:
YTM = (Face Value - Purchase Price) / Purchase Price × (365 / Days to Maturity)For example, consider a 91-day T-bill with a face value of $10,000, purchased for $9,950:
YTM = ($10,000 - $9,950) / $9,950 × (365 / 91)
≈ 0.0201 or 2.01%This calculation shows an annualized yield of approximately 2.01%.
Sources / References
- Investopedia – Yield to Maturity (YTM): https://www.investopedia.com/terms/y/yieldtomaturity.asp
- U.S. Department of the Treasury – Interest Rate Statistics: https://home.treasury.gov/policy-issues/financing-the-government/interest-rate-statistics
- Financial Industry Regulatory Authority (FINRA) – Bonds: https://www.finra.org/investors/learn-to-invest/types-investments/bonds
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