Bond Net Yield-to-Maturity Calculator

Calculate the Net Yield-to-Maturity (or to sale date) of a bond, keeping interest rate risk under control.

by Domenico Cristarella
Independent ConsultantFollow 40

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Description
As an investor, you always want to make sure you receive an adequate return on your investment, considering all risks involved. You can use this calculator to determine the effective net yield to maturity of a bond and to quantify your exposure to the risk of an interest rate increase, using concepts like duration and modified duration. The longer the duration the higher the interest rate risk.

YIELD-TO-MATURITY (YTM) is the total return anticipated on a bond if the bond is held until it matures. Yield to maturity is considered a long-term bond yield but is expressed as an annual rate. In other words, it is the internal rate of return (IRR) of an investment in a bond if the investor holds the bond until maturity, with all payments made as scheduled and reinvested at the same rate.

DURATION measures how long it takes, in years, for an investor to be repaid the bond’s price by the bond’s total cash flows. At the same time, duration is a measure of sensitivity of a bond's or fixed income portfolio's price to changes in interest rates. In general, the higher the duration, the more a bond's price will drop as interest rates rise (and the greater the interest rate risk). As a general rule, for every 1% change in interest rates (increase or decrease), a bond’s price will change approximately 1% in the opposite direction, for every year of duration. If a bond has a duration of five years and interest rates increase 1%, the bond’s price will drop by approximately 5% (1% X 5 years). Likewise, if interest rates fall by 1%, the same bond’s price will increase by about 5% (1% X 5 years).

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