How to Calculate Bond Yield
What is Bond Yield?
Yield to maturity (YTM) is discount rate equating bond price to present value of all future cash flows: the investor's return if held to maturity.
Step-by-Step Guide
- 1Input bond price, coupon, par, maturity
- 2Solve discount rate equation iteratively
- 3Results show YTM percentage
Worked Examples
Input
Bond trading $95 (par $100), 5% coupon, 10 years to maturity
Result
YTM ≈ 5.42% (higher than coupon due to discount)
Requires iteration
Common Mistakes to Avoid
- ✕Confusing YTM with current yield
- ✕Assuming YTM static (changes with market prices)
Frequently Asked Questions
Is YTM guaranteed?
No, assumes hold to maturity and reinvest coupons at YTM rate.
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