Compute yield to maturity for any fixed-coupon bond.
Yield to maturity
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Current yield (coupon/price)
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Annual coupon income
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Your breakdown
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The one rate that captures a bond's true return
Yield to maturity is the single annual rate that makes the present value of every future cash flow from a bond, all the coupons plus the face value at maturity, equal to the price you pay today. In plain terms it is the internal rate of return you lock in if you buy the bond now and hold it to the end. That is why YTM, not the coupon rate, is the number to compare across bonds. The coupon tells you what is printed on the bond; YTM tells you what you will actually earn at the current price.
Why there is no clean formula for it
You cannot solve the bond-pricing equation for the yield with simple algebra, because the rate appears in several discounting terms raised to different powers. So this tool does what a financial calculator or a spreadsheet does: it searches. It tries a yield, prices the bond, and compares that price to the one you entered, then narrows the range and repeats until the computed price matches. This calculator uses a bisection search that converges in well under a hundred steps to a yield accurate to a fraction of a basis point.
A 5% bond bought at $950
Take a bond with a $1,000 face value, a 5% annual coupon, and 10 years left, trading at $950. The 5% coupon pays $50 a year. Because you are paying $950 for something that returns $1,000 at maturity, you also pocket a $50 capital gain over the life of the bond, which lifts your total return above the coupon. The tool solves for a yield to maturity of about 5.669%. Note how it sits above both the 5% coupon and the 5.263% current yield, exactly what you expect for a bond bought at a discount.
Premium, par, and discount in one rule
The relationship between price and the three yields is fixed and worth memorizing. When a bond trades below face value, at a discount, you collect a gain at maturity, so YTM is higher than both the current yield and the coupon. When it trades above face value, at a premium, you absorb a loss back down to face value at maturity, so YTM is lower than the coupon. At par, all three are equal. The calculator flags which case you are in, which is a fast way to sanity-check a quote: a discount bond should never show a YTM below its coupon.
A real-world caveat the tool simplifies on purpose. It discounts annually and assumes coupons are reinvested at the same YTM. Most US corporate and Treasury bonds actually pay semiannually, and a true bond-equivalent yield compounds twice a year, which nudges the figure slightly. More importantly, the reinvestment assumption is exactly that, an assumption; if rates fall and you reinvest those $50 coupons at a lower rate, your realized return will trail the quoted YTM. This is reinvestment risk, and it is the gap between a quoted yield and what actually lands in your account.
YTM versus yield to call, which should I trust?
If the bond is callable, watch yield to call as well as YTM. An issuer will call a bond when it is advantageous to them, typically when rates have fallen and they can refinance cheaper, which is the worst time for you. The conservative habit is to look at the yield to worst, the lower of yield to maturity and yield to call, and assume you will earn that. A premium bond with a near-term call date is the classic trap, since the call can wipe out the rest of the premium you paid.
Does YTM account for taxes or inflation?
No. The yield this tool reports is a nominal, pretax figure. To get your real return, subtract expected inflation, and to get your after-tax return, apply your marginal rate to the taxable portion. Treasury coupon interest is taxable federally but exempt from state tax, while municipal-bond interest is often federally tax-free. For a true apples-to-apples comparison across taxable and tax-exempt bonds, convert to a taxable-equivalent yield using your own bracket.