Question 1

What is yield to maturity (YTM)?

Accepted Answer

Yield to maturity is the total annualised return you earn if you hold the bond until it matures and reinvest all coupon payments at the same rate. It accounts for the coupon income, the return of face value at maturity, and any capital gain or loss from buying at a price different from par.

Question 2

What is the difference between current yield and YTM?

Accepted Answer

Current yield is simply the annual coupon divided by the purchase price — it ignores what happens at maturity. YTM is a more complete measure: it includes both the ongoing coupon payments and the capital gain or loss you receive when the face value is repaid.

Question 3

Why would a bond trade below or above its face value?

Accepted Answer

Bonds trade at a discount (below par) when their coupon rate is lower than the current market yield for similar bonds — investors pay less to get the same effective return. They trade at a premium (above par) when their coupon is higher than the market rate. At maturity, the issuer always repays the full face value regardless of the price you paid.

Question 4

How is YTM calculated?

Accepted Answer

There is no simple algebraic formula for YTM. The calculator solves for the periodic yield that makes the sum of all discounted cash flows — coupon payments plus face value repayment — equal to the purchase price. It then converts the periodic yield to an effective annual rate.

Question 5

Does this calculator account for reinvestment of coupons?

Accepted Answer

YTM assumes all coupon payments are reinvested at the same yield. In practice, reinvestment rates will differ, so the actual return may vary. The cumulative income shown in the table counts received payments without reinvestment, which reflects the cash you directly receive.

Question 6

What is the difference between gross YTM and after-tax yield?

Accepted Answer

Gross YTM (labelled YTM) is calculated on pre-tax cash flows — the same figure brokers and financial terminals publish. It lets you compare bonds across different issuers on equal footing regardless of your personal tax situation. After-tax yield (labelled NET) is what you actually keep after coupon income tax and redemption gain tax are deducted. Use gross YTM to compare; use after-tax yield to plan your real income.

Question 7

What does the rate sensitivity (MD) metric mean?

Accepted Answer

Rate sensitivity shows the modified duration — how much the bond's market price would change if interest rates moved by 1 percentage point. For example, −4.5% means that if market rates rise by 1%, the bond's price would fall by approximately 4.5%. Longer maturities and lower coupon rates produce higher duration and greater sensitivity. This metric matters only if you plan to sell before maturity; if you hold to maturity, price fluctuations do not affect your final return.

Question 8

Why are there two separate tax rate fields?

Accepted Answer

Coupon payments and the capital gain at redemption are often taxed at different rates. Set each rate to match your actual situation. For Ukrainian OVDP (government bonds), both rates can be set to 0 — coupon income and redemption gains are fully tax-exempt for individual investors. For corporate bonds in Ukraine, coupon income is typically subject to 18% income tax plus the military levy, while the redemption gain may be taxed separately.

Question 9

Can I calculate a zero-coupon bond?

Accepted Answer

Yes. Set the coupon rate to 0. The coupon frequency selector will hide automatically since it is irrelevant for zero-coupon bonds. The entire return comes from the capital gain — the difference between the face value repaid at maturity and the price you paid. YTM correctly reflects the annualised discount rate, and the modified duration will approximately equal the years remaining to maturity.

Question 10

How does the investment amount work?

Accepted Answer

The calculator divides your investment amount by the purchase price to find how many complete bonds you can buy — fractional bonds are not counted. All income metrics (total coupon income, total return) and the chart reflect the full portfolio of bonds you can purchase. Any cash left over that cannot buy a complete bond is excluded from the calculation.

Question 11

What does the chart show?

Accepted Answer

The bars show cumulative after-tax coupon income accumulating year by year. At maturity, a capital gain is shown stacked on top in a separate colour. If you bought the bond at a premium (above face value), a downward red bar shows the capital loss at maturity. The chart covers the full portfolio based on your investment amount.

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