Yield to maturity (YTM) is your yearly return if you buy a bond now and hold it until it matures. It counts every coupon, plus the gain or loss as the price moves to face value.
That makes it the one figure that compares bonds with different prices, coupons and maturities. It also rests on a few assumptions you should know.
Coupon rate, current yield and YTM
Three figures describe every bond, and each measures something different:
- Coupon rate: the yearly interest as a share of face value. A 4% coupon on $1,000 pays $40 a year, here in two $20 payments.
- Current yield: the yearly interest divided by the price you pay. It ignores what happens at maturity.
- Yield to maturity: the discount rate that makes all remaining payments worth exactly the price.
Here C is each coupon, F the face value, m the coupons per year and n the years left. There's no direct formula for y, so the calculator narrows in on it by trial. The bond price calculator runs the same equation the other way, from yield to price.
Discount, par or premium: which yield comes out higher?
Take a 7-year bond with a 4% coupon, paid twice a year. Its yields depend only on the price you pay:
| Bought at | Price | Current yield | Yield to maturity |
|---|---|---|---|
| A discount | $920 | 4.35% | 5.39% |
| Par | $1,000 | 4.00% | 4.00% |
| A premium | $1,060 | 3.77% | 3.04% |
At par, all three figures match. Below par, you also collect the gap up to $1,000 at maturity, so YTM rises above the current yield. Above par, you give up the premium by maturity, and YTM drops to 3.04%, well under the 4% coupon.
The less time left, the more the price gap counts
A $50 discount or premium matters far more spread over two years than over twenty. Here's the same 4% bond at two prices and two maturities:
| Bond | Current yield | Yield to maturity |
|---|---|---|
| 2 years left, bought at $950 | 4.21% | 6.71% |
| 20 years left, bought at $950 | 4.21% | 4.38% |
| 2 years left, bought at $1,050 | 3.81% | 1.45% |
| 20 years left, bought at $1,050 | 3.81% | 3.65% |
The current yield doesn't change with maturity at all. On a two-year bond, YTM swings from 6.71% to 1.45%, depending on price. At twenty years, it stays between 3.65% and 4.38%. So current yield misleads most on bonds close to maturity.
How the calculator states the yield
With coupons twice a year, the calculator finds a six-month rate and doubles it. For the discount bond above, 5.39% means two six-month periods at 2.695% each.
Compounded, 1.02695 × 1.02695 − 1 comes to about 5.46% a year. Use that figure to compare the bond with an account that quotes a compounded annual yield. You can enter part of a year, such as 2.5, and the calculator rounds it to whole coupon periods.
What YTM quietly assumes
YTM assumes you hold to maturity, and that the issuer pays every coupon and the face value in full. It also assumes each coupon is reinvested at the same yield. If rates fall and your coupons earn less, your realized return ends up below the YTM.
Callable bonds add a catch: the issuer may repay early, and it has the most reason to after rates fall. For those, the yield to call calculator gives the more realistic figure.
YTM is a pre-tax number
The calculator ignores tax. Interest on Treasury bills, notes and bonds is federally taxable but exempt from state and local income tax. Interest on bonds issued by states and cities generally isn't federally taxable, though some are.
For a bond bought at par, the whole yield is interest. At a 22% federal rate, a 4% YTM keeps 3.12%. For single filers in 2026, the 22% rate covers taxable income over $50,400, up to $105,700. The tax-equivalent yield calculator compares a tax-free bond with a taxable one.