Yield to Maturity (YTM) is the internal rate of return (IRR) earned by an investor who buys a bond at market price, receives all scheduled coupon payments, and holds it until maturity.
Current Yield vs. Yield to Maturity
Current Yield Formula
Current Yield = Annual Coupon Payment ($) ÷ Current Market Price ($)
Approximate YTM Formula
YTM ≈ [ C + (F − P) ÷ n ] ÷ [ (F + P) ÷ 2 ]where C = Annual Coupon, F = Face Value ($1,000), P = Current Price, n = Years to Maturity
Discount vs. Premium Bond Pricing
- Discount Bond (Price < Face Value): YTM is higher than the coupon rate because you gain capital appreciation as the bond converges to par value at maturity.
- Premium Bond (Price > Face Value): YTM is lower than the coupon rate because you experience capital loss as the bond reaches par.
- Par Bond (Price = Face Value): YTM equals the coupon rate exactly.
🧮 Use the Free Bond Calculator
Ready to run your real numbers? Use our full interactive calculator with current official rates, charts, and detailed schedules.
Open Bond Calculator →