Bond Yield to Maturity Calculator
Calculate the approximate yield to maturity (YTM) and current yield of a bond given its price, coupon rate, and time to maturity. Use it when evaluating whether a bond's return justifies its current market price.
About this calculator
Yield to maturity (YTM) is the total annualized return an investor earns by holding a bond until it matures, accounting for coupon payments and the gain or loss from buying at a price different from face value. The approximation formula used here is: YTM ≈ (Annual Coupon + (Face Value − Current Price) / Years to Maturity) / ((Face Value + Current Price) / 2) × 100. The numerator adds annual coupon income to the annualized capital gain or loss. The denominator averages the face and market price as a proxy for the average investment. While the exact YTM requires iterative calculation, this formula provides a close approximation within a few basis points for most bonds. Current yield, a simpler metric, equals Annual Coupon / Current Price × 100.
How to use
Suppose a bond has a face value of $1,000, a current market price of $950, an annual coupon rate of 5%, and 10 years to maturity. Annual coupon = $1,000 × 5% = $50. Capital gain per year = ($1,000 − $950) / 10 = $5. Numerator = $50 + $5 = $55. Denominator = ($1,000 + $950) / 2 = $975. YTM ≈ ($55 / $975) × 100 ≈ 5.64%. Because the bond trades at a discount, YTM exceeds the coupon rate — as expected.
Frequently asked questions
What is the difference between bond yield to maturity and current yield?
Current yield is simply the annual coupon payment divided by the bond's current market price, giving a snapshot income return. Yield to maturity is more comprehensive — it accounts for coupon income plus the capital gain or loss you realize if you hold the bond until it matures at face value. If you buy a bond at a discount (below face value), YTM will be higher than current yield; if at a premium, YTM will be lower. For long-term investment decisions, YTM is the more meaningful metric.
Why does a bond's yield go up when its price falls?
A bond's coupon payment is fixed in dollar terms, so when the price you pay for the bond falls, the same cash flow stream becomes a larger percentage of your investment — yield rises. Conversely, if prices rise, yield falls. This inverse relationship means that when interest rates in the broader market increase, existing bonds with lower fixed coupons become less attractive, their prices drop, and their yields rise to match current market rates. Understanding this relationship is fundamental to managing bond portfolio risk.
How accurate is the approximate yield to maturity formula compared to the exact calculation?
The approximation formula used here is accurate to within roughly 10–20 basis points (0.10–0.20%) for most standard bonds with moderate coupons and reasonable time to maturity. The exact YTM requires solving a complex polynomial equation iteratively, which is how financial calculators and spreadsheets compute it. The approximation becomes less precise for very long maturities, very high or low coupon rates, or bonds priced far from par. For precise institutional trading decisions, the exact method should be used, but for evaluating and comparing bonds the approximation is highly practical.