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YTM

This document provides an example of calculating yield to maturity for a bond. It shows the formula to approximate YTM, which takes into account the coupon/interest payment, face value, price, and years to maturity. An example calculation is shown for a $100 face value bond with an 8% coupon that has a price of $92 and 15 year maturity. The approximate YTM is calculated as 8.8%, meaning the bond is selling at a discount since its interest rate is less than its YTM.

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MadhavKishore
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10K views1 page

YTM

This document provides an example of calculating yield to maturity for a bond. It shows the formula to approximate YTM, which takes into account the coupon/interest payment, face value, price, and years to maturity. An example calculation is shown for a $100 face value bond with an 8% coupon that has a price of $92 and 15 year maturity. The approximate YTM is calculated as 8.8%, meaning the bond is selling at a discount since its interest rate is less than its YTM.

Uploaded by

MadhavKishore
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as DOCX, PDF, TXT or read online on Scribd
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One more basic formula for calculating yield to maturity looks like this:

Approximate YTM=(C+(F-P)/n)/((F+P)/2)
YTM = Yield to Maturity
C = Coupon/Interest Payment
F = Face Value
P = Price
n = Years to maturity
This calculation can only approximate what the yield or actual interest rate will be because prices
change in the actual bond market on a daily basis.
If a bond has a face value of 100 at 8% interest with a 15 year maturity and the coupon or
interest payment each year is 8 (8% x 100). The yield for the bond at its current price is 92.
The equation to find the yield looks like this:
Approximate YTM=(8+(100-92)/15)/((100+92)/2)
This looks like a lot of complex math but it's not as difficult as it may seem. We can break it
down into parts and solve it.
= 8+(100-92)/15
= 8+8/15
= 8+0.533
= 8.533
= (100+92)/2
= 192/2
= 96
= 8.533/96
= 0.088
= 8.8%
Yield to Maturity Calculation
Remember this is still only an approximation as the yield will change as the price of the bond
changes. The bonds interest rate (8%) is less than its yield to maturity (8.8%) so it is selling at a
discount.
Bond Selling At ...
Discount
Premium
Par Value

Satisfies This Condition


Coupon Rate < Current Yield < YTM
Coupon Rate > Current Yield > YTM
Coupon Rate = Current Yield = YTM

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