The formula
How to calculate yield to maturity
Yield to maturity is the total annual return from holding a bond until it is redeemed: the coupons plus the difference between what you paid and what you get back. It is the number the bond market actually quotes.
The exact YTM has no closed-form solution — it has to be found by iteration. The approximation above spreads the redemption gain evenly across the remaining years and is accurate to within a few basis points for bonds trading near par.
The inputs, one by one:
- Face value
- Market price
- Coupon rate (%)
- Years to maturity (years)
Results appear immediately — there is nothing to submit. Changing a field rewrites the link, so you can share the exact scenario you are looking at.
Worked example
Work through the defaults on this page:
- Face value: 1,000
- Market price: 920
- Coupon rate: 4.5 %
- Years to maturity: 6 years
That gives:
- Yield to maturity (approx.): 6.076 %
- Current yield: 4.891 %
- Gain at redemption: 80
Reading the result
When YTM exceeds current yield the bond is trading below face value and part of the return arrives as a capital gain at redemption. When it is lower, you are paying a premium that erodes towards par.
Where this goes wrong. YTM assumes every coupon is reinvested at the same yield. In practice they are reinvested at whatever rates prevail, so the realised return differs — this is reinvestment risk, and it grows with the term.
Only if you hold to redemption, the issuer pays in full, and you reinvest each coupon at the same yield. The first two are usually reliable for government bonds; the third almost never holds exactly.
The same calculation run to the earliest date the issuer can redeem early. For callable bonds trading above par, assume the call: issuers refinance as soon as it is cheaper for them, not for you.
The headline figure is yield to maturity (approx.). With 1,000 face value, 920 market price and 4.5 % coupon rate, that comes to 6.076 %. Change any field and the figure moves with it.