No. of Recommendations: 0
YTM calculations use the standard future value-present value formula

I don't believe the computation is quite that easy. Let me rephrase the problem somewhat differently using a concrete example. Suppose we have a $1000.00 10-year government bond with a coupon rate of 8% that pays interest semi-annually. The price of this 10-year bond is $1102.85. What is the yield-to-maturity?

The yield-to-maturity computation is complicated because you have to factor in (1) the $102.85 capital loss you absorb since you only receive $1000.00 face value at maturity, and (2) the future value of the $40.00 interest payments you receive semi-annually are discounted at the YTM rate.

The answer to this problem, by the way, is 6.58%, but I'm trying to figure out how to compute this value in an empirical formula.
Print the post  


What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.