As with most composite payout problems, equation 1 can't be solved exactly, in general. The nice part is that all yield-to-maturity problems have basically the same form, so people have been able to create programmable calculators and computer programs (and even tables back in the old days...
A tutorial for calculating and comparing bond yields: nominal and current yield, yield to maturity (aka true or effective yield), yield to call, yield to put, yield to sinker, yield to average life, yield to worst, and taxable or bond equivalent yield, a
zero-coupon bonds always demonstrate yields to maturity equal to their normal rates of return. The yield to maturity for zero-coupon bonds is also known as thespot rate.
Calculating Bond Yield to Maturity The equation for Yield to Maturity (YTM) is as follows, where c is the annual coupon payment, Y is the number of years to maturity, r is the YTM, B is the par value of the bond and P is the price of the bond: c× (1 + r)-1 + c × (...
the yield to maturity. Discount each cash flow at the relevant spot interest rate.Bond Valuation using Yield to MaturityThe value of a conventional bond i.e. a bond with no embedded options (also called straight bond or plain-vanilla bond) can be calculated using the following formula:...
Using this trial-and-error process, the right-hand side of the above equation equals $1,015, the current market price of the bond at 3.285%. This is the yield to maturity of the bond. Instead of the hit and trial method, we can use Microsoft Excel RATE function. The RATE function ...
How to Calculate Yield to Maturity With a Financial Calculator Warning Some experts dispute the assumption that interest payments must be reinvested at the YTM rate. Present Value Present valueis used in the YTM calculation to account for thetime value of money.Money you have now is worth more...
Yield to Maturity (Estimated) (%):The estimated yield to maturity using the shortcut equation explained below, so you can compare how the quick estimate would compare with the converged solution. Current Yield (%):Simple yield based upon current trading price and face value of the bond. See...
Summary The paper deals with the analytical study of the behaviour of the duration of bonds when the coupon rate, yield to maturity and term to maturity varies, simultaneously or otherwise. The study of duration as a function of the coupon rate and yield to maturity, leads to the conclusion...
Yield to Maturity | Definition, Formula & Equation from Chapter 5/ Lesson 32 173K Learn what yield to maturity (YTM) is. Understand the definition of yield to maturity (YTM) and know how to calculate it. Discover how to cal...