How this calculator works
Yield to maturity is the single annual discount rate that makes the present value of a bond's remaining coupons and redemption value equal its market price. Unlike the current yield, it reflects both the coupon income and the gain or loss from buying away from face value. The calculation assumes the bond is held to maturity, that every coupon is paid on time in full, and that coupons can be reinvested at the same yield. Those assumptions make it a standard comparison measure rather than a promise of realised return. The quoted figure uses the nominal convention: the annual yield equals the per-period yield times the number of periods per year.
Formula
Price = sum from t = 1 to n of C / (1 + y)^t plus F / (1 + y)^n, solved for y. Here C = face value x coupon rate / frequency, n = years x frequency and F is the face value. The annual yield to maturity is y x frequency. Current yield = annual coupon / price.
Worked example
A $1,000 bond with a 5% annual coupon paid semi-annually, 10 years left and a price of $950 has a periodic yield of about 2.831% and an annual nominal yield to maturity of about 5.662%. Its current yield is $50 / $950 = 5.263%, the lower figure because the price is below face value and the investor also gains $50 at maturity.
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Frequently asked questions
Why is the yield to maturity higher than the current yield for a discount bond?
The investor pays less than face value and receives face value at maturity, so the total return includes that gain. Yield to maturity spreads the gain over the remaining term, while current yield counts only coupons.
Is the quoted yield an effective annual rate?
No. It is a nominal annual rate equal to the periodic yield times the frequency. Compounding within the year would give a slightly higher effective annual rate.
What if the bond has no maturity date?
A perpetual bond has no redemption value, and its yield is simply the coupon divided by the price, the same as the current yield. Entering a very long maturity approximates it but is not exact.
Does tax change the yield to maturity?
This is a pre-tax measure. After-tax return depends on the tax treatment of coupons and of any capital gain or loss, which varies by investor and jurisdiction.