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Finance Formulas
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Yield to Maturity
YIM Caleulator (Click Here or Serll Down)
‘Share =
Hl Approx YTM ‘Start with the Basies
Fo PanVelu ce
pa ee
Po Price as
n= years to maturity
‘The yield to maturity formula Is uses to calculate the yeld on @ bond based on its
Currant price on the market, The yield to maturity formula looks atthe effective yield of
4 bone based on compounding as opposed tothe simple yield which is ound using the
Sividend yield Formula
"Notice that the formula shown is used to calculate the approximate yield to maturity. To
Caleulate the selual vila to matury reeuites trial ana error by putting rates into the
resent value of a band formula unt P, a Price, matches the actual price of the band.
‘Some Financial calculators and computer programs can be used to caleulate the yield to
aay.
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Yield to Maturity and Present Value of a Bond
‘The yield to maturity is found in the prasent value of a bond formula:
¢ ¢ ¢ F
ier” OsrP OF OFF
For calculating yield to maturity, te pric ofthe bond, or present value of the bone, is
already known. Caleulating YTH Is working backwards from tre present value of bond
formula ana trying to determine what is
Example of Yield to Maturity Formula
‘The price of a bond is $920 with a face value of $1000 which Is the face value of many
bonds, Assume thot the annuel coupons re $100, which Is 8 10% coupon rate, and that
there are 10 years remaining unbl matuy. Ths example Using the approximate
formula would Bs
$100 + meecam
Approz YTM =
‘after solving this equetion, the estimated yield to meturty is 11.25%,
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Example of YTM with PV of a Bond
Using the prior example, the estimated yield to maturity is 11.25%, However, afer
‘sing this Fate as rin the present value of @ bond formula, the present value would be
{$927.15 whichis fairly clase to te price, of present value, of $820. Other examples
‘ay have a larger diference
A higher yield to maturity will ave a lower present value or purchase price of a bond.
Inths example, the estimated yield to maturity shows a present value of $927.15 which
|s higher than the actual §920 purchase pre, Therefore the yield to maturity will be 3
Tle higher than 11.25%.
‘Through tial ane error, the yielé to maturity would be 11.38%, which is found by
adjusting each estimated rate untl the present value equals te price of the bond:
[Excl is helpful for the trial and error method by salting the spreadsheet so that al that
|s required to determine the present value is adusting a fixed cel that contains the Fate
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Formulas related to YTM: Current Viel
AdebvGoosle p Cakulston Gable p Band Pace B Cash Band
Yield to Maturity Calculator
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Annual Coupon(s) 0.00
Face Value 0.00
Price 0.00
Years to Maturity 0.000
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