Bond YTM: $1,000 Par, $1,050 Price (Premium Bond), 5% Coupon
A bond trading at a premium of $1,050 with a 5% coupon and 10 years to maturity has a yield to maturity below its coupon rate.
How to use this tool
- Enter the bond's face (par) value, usually $1,000.
- Enter the current price you would pay for the bond.
- Enter the annual coupon rate and years to maturity.
- Read the approximate YTM, current yield, and annual coupon payment.
- Compare YTM with the coupon rate to see if the bond trades at a discount or premium.
Calculate the yield to maturity of a premium bond trading above par at $1,050 with a 5% annual coupon rate.
Frequently asked questions
- What is yield to maturity?
- YTM is the annual return you would earn by buying a bond at its current price and holding it to maturity, counting both coupon income and any gain or loss versus the face value.
- Why is this an approximation?
- Exact YTM requires solving for the rate that discounts all cash flows back to today, which has no algebraic solution and is found by iteration. The approximation formula is fast and close for most bonds.
- How does current yield differ from YTM?
- Current yield only counts coupon income relative to price. YTM also includes the gain or loss from the price converging to face value at maturity, so they match only when the bond trades at par.
- Why does a discount bond have a higher YTM?
- If you pay less than face value, you collect coupons plus an extra gain when the bond repays par at maturity, which raises the total return above the coupon rate.