what is the formula to calculate the yield to maturity?
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http://www.moneychimp.com/articles/finworks/fmbondytm.htm
The formula to calculate the yield to maturity (YTM) of a bond is as follows:
YTM = (C + (F - P) / n) / ((F + P) / 2)
Where:
YTM = yield to maturity
C = annual coupon payment
F = face value of the bond
P = current market price of the bond
n = number of years to maturity
This formula assumes that the bond makes regular fixed coupon payments and that the market price and face value of the bond are known.
However, calculating YTM manually can be complex, especially for bonds with irregular coupon payments or bonds that don't have a fixed maturity date. In such cases, it is recommended to use financial calculators, spreadsheets, or online calculators that can handle more complex scenarios.
To calculate the yield to maturity (YTM) of a bond, you can use the following formula:
YTM = [(C + (F - P) / N) / ((F + P) / 2)] * 100
Where:
- YTM is the yield to maturity
- C is the annual coupon payment
- F is the face value (or par value) of the bond
- P is the purchase price of the bond
- N is the number of years to maturity
However, it's important to note that this formula assumes the bond has a fixed interest rate and pays coupons annually. If the bond pays semi-annually, you'll need to adjust the formula accordingly.
To understand the calculations in more detail and see examples, you can visit the website http://www.moneychimp.com/articles/finworks/fmbondytm.htm, which provides a step-by-step explanation of how to calculate the yield to maturity.