How to calculate Yield to Maturity in Excel

While I was doing my Finance 540, I took note of some useful pieces of information. The content in this post is originally from Investopedia. I welcome all the discussion for educational purposes.

Yield to maturity is used to:
  • Calculate the return in holding a bond
  • Calculate cost of debt in corporate finance.

How to Price a Bond

The formula to price a traditional bond is:
  • PV = Payment / (1+r)1 + Payment / (1+r)2 + ... + Payment + Principle / (1+r)n +
where:
  • PV = price of the bond (present)
  • Payment = coupon payment, which is the coupon rate * face value ÷ number of payments per year
  • r = required rate of return, which is required rate of return ÷ number of payments per year
  • Principal = par value/face value of the bond
  • N = number of years until maturity
Calculate Yield to Maturity

I don't have financial calculator when I did Finance 540. My Casio Fx500-Ms cannot compute the YTM as the financial calculator does. Therefore I was desperate to know how to use excel unless I wanted to mess around with logari formula (of course i didn't). Investopedia was my wizard.

Just remember: Without further notice, the face value of bond is always $1,000. Bond is normally compounded twice a year which means the coupon rates is compounded semiannually. 

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