1. What is Current Bond Yield?

Yield to Maturity (YTM) is the total return anticipated on a bond if held until it matures. It represents the internal rate of return of a bond investment, considering all coupon payments and the difference between purchase price and face value.

2. How Does the Calculator Work?

The calculator uses the YTM formula:

Where:

• \( YTM \) — Yield to Maturity (%)
• \( CF \) — Cash flow from the bond ($)
• \( r \) — Discount rate (%)
• \( t \) — Time period (years)
• \( Price \) — Current bond price ($)

Explanation: The formula calculates the present value of all future cash flows and divides by the current bond price to determine the yield.

3. Importance of YTM Calculation

Details: YTM is crucial for bond investors to compare different bond investments, assess risk-return profiles, and make informed investment decisions based on expected returns.

4. Using the Calculator

Tips: Enter cash flow in dollars, rate as a percentage, period in years, and current bond price in dollars. All values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between current yield and YTM?
A: Current yield only considers annual coupon payments relative to price, while YTM includes all cash flows and price appreciation/depreciation.

Q2: What is a good YTM for bonds?
A: It depends on risk tolerance and market conditions. Generally, higher YTM indicates higher risk. Compare with similar maturity government bonds for reference.

Q3: How does bond price affect YTM?
A: When bond price decreases, YTM increases, and vice versa. This inverse relationship is fundamental to bond pricing.

Q4: What are the limitations of YTM?
A: YTM assumes all coupon payments are reinvested at the same rate and the bond is held to maturity, which may not reflect real-world scenarios.

Q5: How often should YTM be calculated?
A: YTM should be recalculated whenever bond prices change significantly or when making new investment decisions.