How to Calculate Bond Yield: YTM Step-by-Step Guide 2026

What bond yield is

A bond pays you twice: a coupon every few months, and the face value back at maturity. The yield is what those payments are worth as a rate on the money you spent. The current yield is the annual coupon divided by the price. The yield to maturity (YTM) is the rate that makes the present value of every payment equal to the price. The yield to call (YTC) assumes the issuer calls the bond early and pays the call price instead. On a $1,000 bond paying 5.00% a year, bought for $950.00 with 10 years left and a $1,050 call price after 5 years, the coupon is $50.00 a year, the current yield is 5.26%, the YTM is 5.66% and the YTC is 7.06%.

Step 1: Divide the coupon by the price

Current yield = annual coupon ÷ price × 100, and the annual coupon is face value × coupon rate. On a $1,000 bond paying 5.00%, the annual coupon is $50.00. On a $950.00 price the current yield is 5.26% (exact 5.2632%). On a $1,000.00 price it is exactly 5.00%. On a $1,100.00 price it is 4.55% (exact 4.5455%); on an $800.00 price it is 6.25%. The coupon never changes; only the price changes the yield.

Step 2: Solve for the yield to maturity

The YTM is the rate that makes this true: price = every coupon discounted at that rate, plus the face value discounted at that rate. On the defaults — 20 half-yearly $25.00 coupons plus $1,000 at maturity — the rate that makes those payments add up to exactly $950.00 is 5.66% (exact 5.6617%). There is no closed-form formula: the rate appears in twenty different powers, so the equation cannot be rearranged to give it on its own. The calculator solves it by bisection, halving the gap between a low rate and a high rate until both sides agree. The YTM moves with the price ($1,000.00 gives 5.00%, $1,100.00 gives 3.79% (exact 3.7893%), $800.00 gives 7.93% (exact 7.9348%)), with the coupon (3% gives 3.60% (exact 3.5998%), 8% gives 8.76% (exact 8.7608%)) and with the time left (5 years gives 6.18% (exact 6.1776%), 20 years gives 5.41% (exact 5.4123%), 1 year gives 10.39% (exact 10.3930%)).

Step 3: Work out the yield to call

Many bonds can be called — the issuer can pay you back early, at a set call price, on a set date. The YTC is the YTM of that shorter life: the same equation, with the call price instead of the face value and the call date instead of the maturity date. On the defaults the call price is $1,050 after 5 years, so the YTC is 7.06% (exact 7.0554%), above the 5.66% YTM. A $1,000 call after 3 years gives 6.87% (exact 6.8728%); a $1,100 call after 5 years gives 7.90% (exact 7.8995%); a $1,000 call after 5 years gives 6.18% (exact 6.1776%).

Step 4: Premium, discount or par

At par — price $1,000, face $1,000 — the YTM is 5.00%, exactly the coupon rate, and the whole return is the $500.00 of coupons. At a discount — price $950.00 — the YTM is 5.66%, because you also gain $50.00 at maturity. At a deeper discount — price $800.00 — the YTM is 7.93% and the total return is $700.00. At a premium — price $1,100.00 — the YTM is 3.79%, because you lose $100.00 at maturity and the total return is only $400.00. The deepest discount here is a $2,000 face bought for $950.00: coupon $100.00 a year, current yield 10.53% (exact 10.5263%), YTM 15.49% (exact 15.4939%), total return $2,050.00.

The worked example

$1,000 face, 5.00% coupon, $950.00 price, 10 years, 2 payments a year, $1,050 call, 5 years to call. The annual coupon is $50.00, paid as $25.00 every six months. The current yield is 5.26% (exact 5.2632%), the YTM is 5.66% (exact 5.6617%), the YTC is 7.06% (exact 7.0554%). The total coupons are $500.00, the capital gain is $50.00, the total return is $550.00 and the simple annualized return is 5.79% (exact 5.7895%).

Working backwards

The price for a 6.00% YTM is $925.61 (exact 925.6126); at $925.61 the YTM is 6.0000%, at $925.62 it is 5.9999%. The coupon rate for a 6.00% current yield is 5.70% (exact 5.7000%); at 5.70% the current yield is 6.0000%, at 5.69% it is 5.9895%. The face value for a $100.00 annual coupon is $2,000.00 (exact $2,000.00); at $2,000.00 the annual coupon is $100.00, at $1,999.00 it is $99.95. The price for a 5.00% current yield is $1,000.00 (exact $1,000.00); at $1,000.00 the current yield is 5.0000%, at $1,001.00 it is 4.9950%. The call price for a 6.00% YTC is $990.12 (exact 990.1236); at $989.12 the YTC is 5.9819%, at $991.12 it is 6.0180%. The coupon rate for a 6.00% YTM is 5.33% (exact 5.3278%); at 5.3178% the YTM is 5.9896%, at 5.3378% it is 6.0103%.

What a negative YTM means

A negative YTM means you are guaranteed to lose money if the bond pays exactly as promised — the price is higher than the face value plus every coupon put together. On the defaults the coupons add up to $500.00 and the face value is $1,000, so any price above $1,500.00 gives a negative YTM.

Mistakes that overstate your yield

Do not use the coupon rate as the yield: on a $950.00 price the 5.00% coupon is a 5.66% YTM, and on a $1,100.00 price it is only 3.79%. Do not ignore the call: a 7.06% YTC against a 5.66% YTM means the issuer can take the bond back early, and the yield you actually earn may be the lower one. Do not count the capital gain twice: the $50.00 gain is already inside the 5.66% YTM. And do not treat a zero-coupon bond as free return: with a 0% coupon the current yield is 0.00%, the YTM is only 0.51% (exact 0.5136%) and the total return is $50.00.

How this connects

Run your own numbers with the bond yield calculator. For the yield on a dividend stock, see the dividend yield calculator; for the tax on the gain, see the how to calculate capital gains tax on crypto guide.