Answers the Question
How much will an investment earn?
Calculator for Yield to Maturity
What Is the Yield to Maturity?
This formula provides an estimate of how well a bond or other fixed investment will provide income to whomever possesses it.
Some people may refer to it by other names including:
- book yield
- redemption yield
Why Is it Important?
- The main reason to purchase bonds is to guarantee a certain return. This formula estimates the return so that investors can decide whether or not it is worth purchasing.
Formula(s) to Calculate Yield to Maturity
- YIELD TO MATURITY = ( INTEREST PAYMENT + ( FACE VALUE - PRICE ) / YEARS TO MATURITY) / ((FACE VALUE + PRICE ) / 2)
- Not considering that some bonds are not held to maturity. If a bond will be sold in the future, the prevailing interest rates will affect the price buyers are willing to pay.