Yield to Maturity: A Basic Interactive

The yield to maturity concept describes the approximate rate of return a bond generates if it’s held until redemption date. It’s dependent on a few things including the coupon rate (nominal interest rate), face value of the bond, price of the bond and the time until maturity.

It can get a little confusing with the mathematics behind it, so I’ve created a simple Shiny App that allows you to manipulate the inputs to observe what happens. Bear in mind this is not a financial calculator, it’s an interactive for educational purposes. It’s also the approximate not exact yield to maturity of a bond which is fine for our purposes.

I’ve mapped the yield up to 30 year redemption and assumed a face value of $100. Coupon rate varies between 0% and 25%. Current price of the bond can vary between $50 and $150. Mostly, the yield curve is very flat in this simplified approximation- but observe¬†what happens when there is only a short time to maturity (0-5 years) and rates or price are extreme. You can find the interactive directly here.

 

 

Remember, this is just an approximation. For a more accurate calculation, see here.

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