How does yield to maturity differ from the coupon rate?

The coupon rate is a fixed percentage of face value. Yield to maturity is computed on the price you actually pay and includes the difference between that price and the face value returned at the end. Buy below par and your yield exceeds the coupon; buy above par and it falls short.

What is duration for?

Duration is the average time it takes for the investment to return as cash. The practical form is modified duration: it shows by what percentage the price moves if the yield rises by one percentage point. Longer issues react more strongly to rates.

Why does the result differ from the exchange figure?

The exchange computes the yield under its own day-count conventions. Here the calculation follows the issue's cash flow and the full purchase price — with accrued interest. A gap of a few hundredths of a percent is normal; a gap of several times means the issue's parameters were entered incorrectly.

Calculators

Bond yield calculator

Yield to maturity, current yield and duration: what a bond returns if held to the end.

Result

Fill in the fields to see the calculation.

Inputs

How it is calculated

Yield to maturity is the rate at which all future coupons and the face value equal the full purchase price: the bond's price plus accrued interest. Computing from the price without accrued interest overstates the yield, the more so the closer the next payment is.

Coupons are counted back from the maturity date in whole-day steps, the way the issuer pays them. The figure assumes the bond is held to the end and the coupons are reinvested at the same yield.

Terms used hereYield to maturity Current yield Accrued interest Modified duration

How to use it

Pick an issue
Start typing a ticker or ISIN — the platform fills in face value, coupon, payment frequency and maturity date.
Check the price and accrued interest
The last known price and accrued interest are filled in. If you are buying at a different price, enter your own.
Read the result
Yield to maturity, the full purchase price, current yield and duration are next to the form.

Questions

How does yield to maturity differ from the coupon rate?: The coupon rate is a fixed percentage of face value. Yield to maturity is computed on the price you actually pay and includes the difference between that price and the face value returned at the end. Buy below par and your yield exceeds the coupon; buy above par and it falls short.
What is duration for?: Duration is the average time it takes for the investment to return as cash. The practical form is modified duration: it shows by what percentage the price moves if the yield rises by one percentage point. Longer issues react more strongly to rates.
Why does the result differ from the exchange figure?: The exchange computes the yield under its own day-count conventions. Here the calculation follows the issue's cash flow and the full purchase price — with accrued interest. A gap of a few hundredths of a percent is normal; a gap of several times means the issue's parameters were entered incorrectly.

What this figure does not mean

Yield to maturity assumes the bond is held to maturity and every coupon is reinvested at the same rate. Neither is guaranteed. The calculation ignores tax, broker fees, call options and principal amortisation; for a floating-coupon issue future payments are unknown, and the figure is an estimate at the current rate.