Bond Calculator — Yield to Maturity (YTM) & Pricing

Current yield = annual coupon / market price. It is simple to calculate but ignores the capital gain (if you bought at a discount) or loss (if you bought at a premium) at maturity. YTM is the complete measure — it incorporates all cash flows including the final return of face value. For a bond at par, current yield = YTM = coupon rate. For any other price, all three are different.

When market rates rise, newly issued bonds offer higher coupons. To compete, the price of existing lower-coupon bonds must fall until their total return (YTM) matches the new market rate. Conversely, when rates fall, the higher fixed coupon of existing bonds becomes more valuable, so their price rises. This inverse relationship is the central risk of bond investing — "interest rate risk."

Duration measures how sensitive a bond's price is to interest rate changes — roughly, the percentage change in price for a 1% change in yield. A 10-year bond with 5-year duration would drop approximately 5% in price if yields rise 1%. Longer maturity and lower coupon rates increase duration (higher rate sensitivity). Zero-coupon bonds have the highest duration (equal to their maturity).

The classic approximation: YTM ≈ (Annual Coupon + (Face Value − Market Price) / Years to Maturity) / ((Face Value + Market Price) / 2). This is the formula taught in most finance courses and produces a close estimate. This calculator uses an iterative binary search method to compute the exact YTM to 4 decimal places of precision.

A zero-coupon bond pays no regular coupon payments — it is issued at a deep discount to face value and matures at par. The total return comes entirely from capital appreciation. Zero-coupon bonds have higher duration (equal to maturity) and thus higher price volatility relative to coupon-paying bonds of the same maturity. They are popular for tax-advantaged accounts and for matching specific future liabilities.