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 the internal rate of return (IRR) of an investment in a bond.

2. How Does the Calculator Work?

The calculator solves for YTM in the equation:

Where:

• \( Price \) — Current market price of the bond
• \( CF_t \) — Cash flow at time period t
• \( r \) — Yield to Maturity (YTM)
• \( t \) — Time period in years

Explanation: The equation calculates the discount rate that equates the present value of all future cash flows to the bond's current price.

3. Importance of YTM Calculation

Details: YTM is a crucial measure for bond investors as it enables comparison between bonds with different maturities and coupon rates.

4. Using the Calculator

Tips: Enter the bond's current price, expected cash flows, and time to maturity. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What's the difference between YTM and current yield?
A: Current yield only considers the annual coupon payments relative to the price, while YTM considers all cash flows including principal repayment.

Q2: What does a higher YTM indicate?
A: Generally, higher YTM indicates higher risk as investors demand greater return for perceived risk.

Q3: How does YTM relate to bond prices?
A: YTM and bond prices have an inverse relationship - when YTM rises, bond prices fall and vice versa.

Q4: What are the limitations of YTM?
A: YTM assumes all coupon payments are reinvested at the same rate and that the bond is held to maturity.

Q5: How accurate is this calculator?
A: This provides an approximation. For exact YTM calculations, more sophisticated numerical methods are typically used.