The yield of a bond up to maturity or YTM, shows the amount that an investor expects the bond to redeem on the due date of an interest loan loan. YTM is also known as the Internal Rate of Return and provides security for debt. Because the IRR calculation of the bond can be a complicated exercise, most financial professionals use a calculator or a spreadsheet to identify the IRR. However, if a common investor is unavailable, it may be difficult to determine the IRR of the bond. The following is an estimate only, but provides a reasonable approximation.
- 1 Find the bonus voucher payments, the purchase price and the number of duration until the bonus expires. Coupon payments are the interest payments you receive from the bond. The purchase price is the price you paid for the bonus. The amount of time until the bond expires is the time required until you receive the payment of the nominal amount of the bond. The number of remaining periods refers to how many times you will receive a payment coupon before the bonus ends. For example, if you purchase a bonus of USD834 you will receive annual USD75 payments. The bonus will end after 23 coupon payments.
- 2 Reduce the purchase price of USD1,000 bonus. This is bonus or discount bonus. For example, USD1,000 minus USD834 is equivalent to USD166.
- 3Split the bonus bonus or discount on the number of remaining periods. In this example, USD166 divided into 23 equal periods will yield USD7,217 per season.
- 4Add bonus bonus vouchers to the amount calculated in step 3. This is the numerator of the equation. In this example, USD7,217 plus USD75 is equivalent to USD82,217 per season.
- 5Add $ 1,000 to the purchase price of the bond and divide it by two. This is the denominator of the equation. In this example, US $ 1,000 plus US $ 834 equals US $ 1,834. Then, US $ 1,834 divided by 2 equals US $ 917.
- 6Divide the counter between the denominator. In this example, USD82,217 per season, divided by USD917 is equivalent to 0.08966 or 8.966 percent.