20. Yield to maturity (YTM) Yield to Maturity (YTM) A bond's yield to maturity (YTM) is the total annual effective rate of return earned by a bondholder on a bond if the bond is held to maturity. Three generalizations can be made about the yield to maturity: the coupon rate printed on the certificate. than face value), then the YTM will be the coupon rate 1. If a bond is purchased for exactly its face value, then the YTM is 2. If a bond is purchased at a premium (that is, at a price printed on the certificate. 3. If a bond is purchased at a discount (that is, at a price printed on the certificate. than face value), then the YTM will be the coupon rate The Yield to Maturity (YTM) Formula You can use the following formula to calculate the yield to maturity on a bond. This formula factors in the approximate appreciation when a bond is purchased at a discount or at a premium: Yield to Maturity (YTM) I+I(FV-CV)/ N) (1 CV)/2 where: I Number of years until maturity = FV = Interest paid annually in dollars CV Face value N Current value Example: Calculate the Yield to Maturity (YTM) Suppose you paid $840 for a 15-year bond with a face value of $1,000 and a coupon rate of 6.5%. In this case, the bond was purchased at a , which means that the YTM should be than the stated coupon rate. This bond pays $ in interest per year. %. (Note: Do not round intermediate calculations. Round Using the provided yield to maturity (YTM) formula, the YTM for this bond is your final answer to two decimal places.)