# How to Calculate Yield to Maturity

Yield to maturity is the fully compounded annual rate of return paid out over a bond's life. Find out how to compute the rate of return on your bond.

### Instructions

• Step 1: Take the first sum of \$75 and divide it by the second sum of \$875 to compute an approximate yield to maturity, or YTM, of 8.57 percent.
• FACT: President Franklin D. Roosevelt signed legislation in 1935 creating savings bonds, popularly called "baby bonds."
• Step 2: Take face value price of the bond, add it to the purchase price, and divide this sum by two. So the \$1,000 face value of your bond that you paid \$750 for totals \$1,750. Divided by two, the sum is \$875.
• Step 3: Add the coupon payment of \$50 to the sum of \$25. Your total is now \$75.
• TIP: Most bonds pay semi-annually, so add these together to get the coupon payment.
• Step 4: Subtract the purchase price from the face value of the bond and divide that sum by the number of years to maturity. For example, if you paid \$750 for your \$1,000 bond and the period of maturity is 10 years, the total would be \$25.
• Step 5: Determine the annual interest paid on the bond to find the coupon payment. If you hold a bond worth \$1,000 at 5 percent interest, you will receive \$50 in coupon payments per year.