Question 1

What is YTM (Yield to Maturity)?

Accepted Answer

YTM is the total annualized return you earn if you buy a bond at its current market price and hold it until maturity, collecting all coupon payments along the way. It accounts for the bond's current price, face value, coupon rate, and time to maturity.

Question 2

How is YTM calculated?

Accepted Answer

YTM is calculated by finding the discount rate that equates the present value of all future cash flows (coupon payments + face value at maturity) to the bond's current market price. This requires iterative computation as there is no closed-form solution.

Question 3

What is a good YTM for bonds in India?

Accepted Answer

YTM varies by credit rating and tenure. Government bonds typically yield 7-7.5%, AAA corporate bonds 7.5-9%, AA rated bonds 9-11%, and A rated or lower bonds can yield 11-14%+. Higher YTM usually means higher credit risk.

Question 4

What is the difference between coupon rate and YTM?

Accepted Answer

The coupon rate is the fixed annual interest payment as a percentage of the bond's face value. YTM is the actual return considering the bond's market price, which may differ from face value. If a bond trades below face value, YTM exceeds the coupon rate; if above, YTM is lower.

YTM Calculator

Yield to Maturity (YTM) Calculator