π¦ Yield to Maturity Calculator
The bond's true annualized return.
Yield to maturity (approx)
Estimates for planning only, not financial advice.
A $1,000 bond with a $60 coupon, priced at $1,025 with 10 years left: approximate yield to maturity is 5.68 percent. The coupon rate is 6 percent and the current yield 5.85 percent, but the $25 premium amortizes away over the decade, pulling the true annualized return to 5.68. Price, not coupon, sets your return.
How to Use This Calculator
Enter the bond's current price, face value, annual coupon payment, and years to maturity. The calculator returns approximate YTM plus current yield and coupon rate for comparison.
Enter the full (dirty) price: quoted price plus accrued interest if between coupons.
Enter the annual coupon in dollars, not percent: a 6% $1,000 bond pays $60.
Compare YTM against current yield: the gap is the premium/discount amortizing.
The Formula
YTM is the discount rate equating the bond's price to its future cash flows, the single number summarizing the bond as an investment. The approximation annualizes the coupon plus the straight-line amortization of the discount or premium, over average invested capital. Exact YTM solves the IRR; this lands within basis points for ordinary bonds.
Worked Example
Price $1,025, face $1,000, coupon $60, 10 years. Annualized capital loss: (1,000 - 1,025) / 10 = -$2.50/year. Numerator: 60 - 2.50 = $57.50. Denominator: (1,000 + 1,025) / 2 = $1,012.50. YTM: 57.50 / 1,012.50 = 5.679 percent, shown as 5.68%. Current yield: 60 / 1,025 = 5.85%. Coupon rate: 6.00%. Three yields, one bond: YTM is the only one that is your actual return if held to maturity.
Price-Yield Mechanics
| Price vs par | YTM vs coupon | Meaning |
|---|---|---|
| Price > par (premium) | YTM < coupon | Rates fell since issuance |
| Price = par | YTM = coupon | Rates unchanged |
| Price < par (discount) | YTM > coupon | Rates rose since issuance |
At $950 the same bond yields 6.67 percent: the $50 discount amortizes into return. This inverse price-yield relationship is the whole bond market in one line. Longer maturities swing harder: the 10-year's price moves about 8x more than a 1-year's for the same rate change (duration).
What YTM Assumes
Two assumptions hide inside: you hold to maturity, and every coupon reinvests at the YTM rate. The reinvestment assumption is the shaky one: if rates fall, coupons reinvest lower and realized return trails YTM. Zero-coupon bonds have no reinvestment risk, which is why their YTM is exact. For callable bonds, run our yield to call calculator instead; for the tax angle on the same income, the taxable-equivalent yield calculator.
YTM vs Current Yield vs SEC Yield
Three yields, three answers. Current yield (annual coupon / price) is the quick-and-dirty income rate: a 5 percent coupon bond at $90 shows 5.56 percent current yield. It ignores the pull to par, so it understates return on discount bonds and overstates it on premium bonds. Useful for a glance, dangerous for a decision.
YTM is the full story for a bond held to maturity: it includes coupons plus the amortized gain or loss to par, assuming coupons reinvest at the YTM rate. That reinvestment assumption is its famous weakness: if rates fall, actual realized return trails YTM, sometimes significantly. For bonds bought at large premiums or discounts, the gap between current yield and YTM is where novices get surprised.
SEC yield standardizes bond funds: a 30-day figure net of expenses, letting investors compare funds apples to apples. It is backward-looking and distribution yields can differ, but it is the only regulated number in the fund world. When comparing a fund to individual bonds, use SEC yield against YTM, never distribution yield: distributions include return of capital and premium amortization that flatter the payout. Match the yield to the question, or the answer misleads.
The Yield That Counts
Yield to maturity is the bond market's common language: total return if held to maturity, in one number. Use it to compare bonds, current yield for a quick income glance, and SEC yield for funds; remember the reinvestment assumption behind YTM. Price moves inversely to yield, always. Master that seesaw and the bond market starts making sense.
Speak Bond Fluently
YTM for comparing bonds, current yield for a quick income read, SEC yield for funds: match the metric to the question and you will never be misled. Remember the inverse seesaw (yields up, prices down), the reinvestment assumption inside YTM, and the pull to par that rewards discount buyers. Bonds reward the patient and the precise; this calculator handles the precise part.
One last habit: always compare YTM against your alternatives after tax. A 5 percent muni YTM can beat a 6.5 percent corporate YTM for high-bracket investors once taxes bite. Yield is never just a number; it is a number after tax, after risk, and after your time horizon.
Estimates for planning only, not financial advice.
Frequently Asked Questions
What is yield to maturity?
The annualized total return if you buy a bond at the current price and hold it to maturity, collecting all coupons and the face value. It is the standard measure of a bond's return, blending coupon income with premium/discount amortization.
How do you calculate yield to maturity?
Approximately: (annual coupon + (face value - price) / years) / ((face + price) / 2). With price $1,025, face $1,000, coupon $60, 10 years: (60-2.50)/1,012.50 = 5.68%. The exact YTM is the IRR of the cash flows. This calculator solves the precise IRR, so the number you see has zero approximation error; the approximation is shown only to build intuition.
What is the difference between YTM and current yield?
Current yield = coupon / price, ignoring the gain or loss at maturity. YTM includes the amortized premium/discount, so it is the true annualized return. For premium bonds YTM < current yield < coupon rate. The ordering flips for discount bonds: coupon rate < current yield < YTM. Memorizing both orderings prevents the most common bond-yield confusion.
Why does YTM differ from the coupon rate?
Because you rarely pay par. Above par, the premium amortizes against the coupon (YTM below coupon); below par, the discount accretes into return (YTM above coupon). At par they are equal. Market rates move constantly after issuance, so par purchases are the exception: every secondary-market buyer pays a premium or takes a discount, and YTM adjusts accordingly.
What assumptions does YTM make?
You hold to maturity and reinvest every coupon at the YTM rate. The reinvestment assumption often fails in practice: falling rates mean coupons compound slower, so realized return trails quoted YTM. The gap is worst for high-coupon, long-maturity bonds, where reinvested coupons dominate total return; zero-coupon bonds eliminate the assumption entirely, which is one reason institutions love them.
How accurate is the approximate YTM formula?
Very close for standard bonds: within a few basis points when coupons are near market rates. For deep discounts, very long maturities, or zero-coupons, solve the exact IRR instead. This calculator always solves the exact IRR, so accuracy is not a concern here; the approximation formula survives in textbooks because it builds intuition about how price, coupon, and time interact.
What is the relationship between price and yield?
Inverse: when market rates rise, existing bonds' prices fall until their YTM matches, and vice versa. Longer maturities move more (duration). This is the fundamental bond market mechanic. A 30-year bond can lose 20% of its price on a 1.5-point rate rise while a 2-year note barely moves; duration quantifies exactly how much, and it is the first risk number bond managers watch.
Does YTM account for default risk?
No. YTM is promised yield assuming full payment. Expected return is lower by the probability-weighted loss. For risky credits, compare yield spreads over Treasuries rather than raw YTM. An 8% YTM on a distressed bond with a 20% default probability is not an 8% expected return; the spread over Treasuries tells you what the market charges for bearing that default risk.
What is the YTM of a zero-coupon bond?
(Face / price)^(1/years) - 1, exact with no approximation needed and no reinvestment risk. Zeros are the purest expression of time value in the bond market. Pension funds use zero-coupon bonds to defease future liabilities precisely: the cash arrives exactly when needed, with no reinvestment decisions in between.
Should I use YTM or yield to worst?
YTM for non-callable bonds; yield to worst for callables (it takes the minimum across call dates). Quoting YTM on a premium callable bond overstates the realistic return. Regulatory convention requires yield-to-worst quotes on callable bonds for exactly this reason; any quote showing only YTM on a premium callable deserves skepticism.