1. What is Yield to Maturity?

Yield to Maturity (YTM) is the total return anticipated on a bond if the bond is held until it matures. It's expressed as an annual rate and considers both current yield and any capital gains or losses.

2. How Does the Calculator Work?

The calculator uses the YTM approximation formula:

Where:

• \( C \) — Annual coupon payment ($)
• \( FV \) — Face value of the bond ($)
• \( PV \) — Current price of the bond ($)
• \( n \) — Years to maturity

Explanation: The formula calculates the approximate yield by considering both the coupon payments and the capital gain/loss if held to maturity.

3. Importance of YTM Calculation

Details: YTM is crucial for bond investors to compare bonds with different maturities and coupon rates. It helps determine if a bond is a good investment relative to other bonds and investment options.

4. Using the Calculator

Tips: Enter all values in dollars except for years to maturity. The calculator requires positive values for all inputs, with years to maturity greater than zero.

5. Frequently Asked Questions (FAQ)

Q1: How accurate is this YTM calculation?
A: This provides an approximation. For precise YTM, more complex iterative calculations are needed.

Q2: What's the difference between YTM and current yield?
A: Current yield only considers coupon payments relative to price, while YTM also accounts for capital gains/losses at maturity.

Q3: Does this work for zero-coupon bonds?
A: Yes, simply enter 0 for the coupon payment.

Q4: What if my bond pays semi-annual coupons?
A: You should adjust the coupon payment to the annual total and use annual periods.

Q5: Why does YTM change when bond prices change?
A: YTM is inversely related to bond price - as price increases, YTM decreases, and vice versa.