Finance Formulas

HOME

GENERAL FINANCE BANKING

STOCKS/BONDS CORPORATE FINANCE

FINANCIAL MARKETS ALPHABETICAL LIST

Search

Custom Search

Yield to Maturity
YTM Calculator (Click Here or Scroll Down)

This website uses cookies to ensure you get the best Got it!
experience on our website. By using our site, you agree to its
use of cookies. More info

The yield to maturity formula is used to calculate the

yield on a bond based on its current price on the
market. The yield to maturity formula looks at the
effective yield of a bond based on compounding as
opposed to the simple yield which is found using the
dividend yield formula.

Notice that the formula shown is used to calculate

the approximate yield to maturity. To calculate the
actual yield to maturity requires trial and error by
putting rates into the present value of a bond
formula until P, or Price, matches the actual price of
the bond. Some financial calculators and computer
programs can be used to calculate the yield to
maturity.

Yield to Maturity and Present Value of a

Bond

The yield to maturity is found in the present value of

a bond formula:

For calculating yield to maturity, the price of the

bond, or present value of the bond, is already
known. Calculating YTM is working backwards from
the present value of a bond formula and trying to
determine what r is.

Example of Yield to Maturity Formula

The price of a bond is $920 with a face value of

$1000 which is the face value of many bonds.
Assume that the annual coupons are $100, which is
a 10% coupon rate, and that there are 10 years
remaining until maturity. This example using the
approximate formula would be

After solving this equation, the estimated yield to

maturity is 11.25%.

Example of YTM with PV of a Bond

Using the prior example, the estimated yield to

maturity is 11.25%. However, after using this rate as
r in the present value of a bond formula, the present
value would be $927.15 which is fairly close to the
price, or present value, of $920. Other examples
may have a larger difference.

A higher yield to maturity will have a lower present

value or purchase price of a bond. In this example,
the estimated yield to maturity shows a present
value of $927.15 which is higher than the actual
$920 purchase price. Therefore, the yield to
maturity will be a little higher than 11.25%.

Through trial and error, the yield to maturity would

be 11.38%, which is found by adjusting each
estimated rate until the present value equals the
price of the bond.

Excel is helpful for the trial and error method by

setting the spreadsheet so that all that is required to
determine the present value is adjusting a fixed cell
that contains the rate.

Return to Top

Ads by Google

Investment Return

Buy Stock

A Financial

29 Card Game

Action Game Apps

Formulas related to YTM

Current Yield

Yield to Maturity Calculator

Annual Coupon(s) 0.00

Face Value 0.00

Price 0.00

Years to Maturity 0.000

= 0.000%

Alphabetical Index:

A-C D-F G-I J-L

M-P Q-S T-V W-Z

Home Privacy Policy

*The content of this site is not intended to be financial advice.

This site was designed for educational purposes.
The user should use information provided by any tools or
material at his or her own discretion, as no warranty is provided.

When considering this site as a source for academic reasons,

please remember that this site is not
subject to the same rigor as academic journals, course
materials, and similar publications.

Feel Free to Enjoy!

Contact us at: Contact@FinanceFormulas.net