Price & Yield

Yield to Maturity

YTM is the yield that equates bond value to price by discounting all future cash flows.

highlighted = computed this step

Solve for YTM

Yield to maturity is the discount rate that makes discounted contract value equal the observed price.

P=∑t=1nCt(1+YTM)t\text{P}=\sum_{t=1}^{n}\frac{C_t}{(1+\text{YTM})^t}

Par shortcut

In this par bond, the observed price is $1,000.00 at 10% coupon and the exact solution is 10%. A general off-par YTM is typically found by numerical root-finding.

10% for par in this exact setup10\% \text{ for par in this exact setup}