Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Yield to maturity accounts for three things at once that a simple coupon rate ignores entirely: the bond's current market price, the coupon payments, and the gain or loss built into the gap between purchase price and face value at maturity, which is why a bond's YTM and its stated coupon rate frequently diverge once the bond isn't trading at exactly face value.
Before you rely on it
What to check
Use yield to maturity, not the coupon rate, when comparing bonds trading at different prices relative to face value.
The common error
Where people go wrong with yield to maturity calculator
Comparing bonds by coupon rate alone. Two bonds with the identical coupon can offer very different actual returns once one is trading at a premium and the other at a discount to face value.
Sensitivity evidence
How market price changes the estimated yield to maturity
| Market price | Estimated yield to maturity | Current yield |
|---|---|---|
| $760 | 9.3% | 6.6% |
| $855 | 7.4% | 5.8% |
| $950worked example | 5.8% | 5.3% |
| $1,045 | 4.3% | 4.8% |
| $1,140 | 3.0% | 4.4% |
Every input, tested
Which input moves the estimated yield to maturity most
| Input | Tested from | To | Estimated yield to maturity at each end | Swing |
|---|---|---|---|---|
| Face value | $900 | $1,100 | 4.2% to 7.3% | 3.1% (54%) |
| Market price | $855 | $1,045 | 7.4% to 4.3% | 3.1% (54%) |
| Annual coupon rate | 4.0% | 6.0% | 4.8% to 6.8% | 2.1% (36%) |
| Years to maturity | 6.0 years | 10.0 years | 6.0% to 5.7% | 0.343% (5.9%) |
| Payments per year | 1 | 3 | 5.8% to 5.8% | 0.012% (0.2%) |
Two variables at once
Estimated yield to maturity by market price and face value
| Market price \ Face value | $800 | $1,000 | $1,200 |
|---|---|---|---|
| $760 | 5.8% | 9.3% | 12.3% |
| $855 | 4.0% | 7.4% | 10.4% |
| $950 | 2.4% | 5.8% | 8.7% |
| $1,045 | 1.0% | 4.3% | 7.1% |
| $1,140 | -0.255% | 3.0% | 5.8% |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Market price | $950 |
| Face value | $1,000 |
| Annual coupon rate | 5.0% |
| Years to maturity | 8.0 years |
| Payments per year | 2 |
| Estimated yield to maturity | 5.8% |
| Current yield | 5.3% |
Where the inputs come from
Market price is what the bond currently trades for, face value is what it repays at maturity, and the coupon rate, years to maturity and payments per year describe its cash flows. Use the clean price from a quote, not including accrued interest, unless you adjust for it. The tool solves for the discount rate that makes the present value of the coupons and face value equal to the price, an iterative calculation.
Using the estimated yield to maturity in a real decision
Use it to compare bonds with different prices, coupons and maturities on one basis.
When the result stops applying
The measure assumes coupons are reinvested at the YTM and that the issuer does not default or call the bond, which is rarely exactly true. For callable bonds, yield to call or yield to worst is more relevant. It is a pre-tax figure, and taxes on interest and on any discount change the after-tax result. Bond prices fluctuate if you sell before maturity.
What to compare it with
Compare the coupon income with the current yield calculator, and the effect of an early redemption on the yield to call page. The bond price calculator goes the other way, and the duration page measures rate sensitivity. The tax-equivalent yield calculator compares taxable and tax-free bonds.
People also ask
Frequently asked questions
What is the difference between yield to maturity and current yield?
Current yield is annual coupon divided by price and ignores gain or loss at maturity. Yield to maturity includes it, along with reinvestment of coupons.
Why is yield to maturity higher than the coupon rate for a discount bond?
Because you buy below par and receive full face value at maturity, that gain adds to the coupon income and raises the total return.
Can I rely on YTM as my actual return?
Only if you hold to maturity, the issuer pays as promised and you reinvest coupons at the same yield. Otherwise your realized return differs.