Master the YIELD Function: Calculate Bond Yield to Maturity in Excel
=YIELD(settlement, maturity, rate, pr, redemption, frequency, [basis])The YIELD function is a powerful financial tool in Excel designed to calculate the yield to maturity (YTM) of a security, typically bonds. This advanced function is essential for financial analysts, investment professionals, and portfolio managers who need to evaluate the return on fixed-income securities. Understanding how to use YIELD effectively allows you to determine what annual return an investor will receive if they hold a bond until its maturity date, considering the current market price, coupon payments, and redemption value. The YIELD function takes into account multiple variables including the settlement date (when you purchase the security), the maturity date (when the issuer repays the principal), the coupon rate, the current price, the redemption value, and payment frequency. This makes it more comprehensive than simpler yield calculations and provides accurate results for complex bond valuations. Whether you're comparing investment opportunities, performing bond portfolio analysis, or conducting financial due diligence, mastering the YIELD function will significantly enhance your Excel capabilities and decision-making accuracy in fixed-income markets.
Syntax & Parameters
The YIELD function syntax is: =YIELD(settlement, maturity, rate, pr, redemption, frequency, [basis]). Each parameter plays a critical role in the calculation. The settlement parameter represents the date when the security is purchased or traded, formatted as a date value or text string. The maturity parameter specifies when the bond matures and the principal is repaid. The rate parameter is the annual coupon rate expressed as a decimal (for example, 0.05 for 5%). The pr parameter is the current market price of the security per $100 face value. The redemption parameter is the redemption value per $100 face value, typically 100 for bonds redeemed at par. The frequency parameter indicates how many times per year coupons are paid: 1 for annual, 2 for semi-annual, 4 for quarterly. The optional basis parameter determines the day-count convention (0=30/360, 1=actual/actual, 2=actual/360, 3=actual/365, 4=30/360 European). All date parameters must be valid Excel dates, and the function returns the yield as a decimal that you can format as a percentage. Ensure consistency in date formatting and that settlement occurs before maturity for meaningful results.
settlementmaturityrateprredemptionfrequencybasisPractical Examples
Corporate Bond Yield Calculation
=YIELD(DATE(2024,1,15), DATE(2029,1,15), 0.045, 98.50, 100, 2)This formula calculates the YTM by considering the purchase price below par ($98.50), the coupon rate (4.5%), semi-annual payments (frequency=2), and the 5-year holding period. The result provides the annualized return the investor will receive.
Government Bond Analysis
=YIELD(DATE(2024,3,1), DATE(2027,6,1), 0.032, 102.25, 100, 2, 1)This example demonstrates premium bond pricing (above $100) and uses basis=1 for actual/actual day counting, which is standard for government securities. The formula accounts for the accrued interest period and provides precise yield calculation.
High-Yield Bond with Annual Coupons
=YIELD(DATE(2023,12,1), DATE(2028,12,1), 0.075, 95.00, 100, 1, 0)This example shows a discounted bond (below par) with higher coupon rates typical of high-yield securities. Annual frequency (1) and 30/360 basis (0) are commonly used for corporate bonds. The calculation reveals the actual return accounting for the discount purchase price.
Key Takeaways
- YIELD calculates yield to maturity (YTM) for bonds and fixed-income securities by solving for the discount rate that equates the bond's price to its future cash flows
- Proper parameter formatting is critical: use DATE() for dates, decimals for rates (0.05 not 5%), and ensure settlement < maturity for valid results
- The basis parameter determines day-count convention and significantly affects calculations; choose 0 for corporate bonds, 1 for government securities to ensure accuracy
- YIELD is an inverse function to PRICE; use them together to verify bond valuations and identify trading opportunities between calculated fair value and market prices
- Advanced users should combine YIELD with IF, Goal Seek, and Solver to automate bond screening, portfolio construction, and break-even analysis workflows
Pro Tips
Always use the DATE() function for date parameters rather than text strings to ensure Excel correctly interprets dates across different regional settings and date formats.
Impact : Prevents #VALUE! errors and ensures formula consistency regardless of user location or system date settings, making spreadsheets more portable and reliable.
Create a reference table with standard basis values (0, 1, 2, 3, 4) and their corresponding day-count conventions, then use VLOOKUP or INDEX/MATCH to automatically populate the basis parameter based on security type.
Impact : Reduces manual errors when analyzing mixed bond portfolios with different security types, ensures consistency, and makes spreadsheets more maintainable and auditable.
For bonds with accrued interest, add the accrued interest calculation to your price input: =YIELD(..., pr + accruedInterest, ...) to get the true yield on the clean price basis.
Impact : Provides more accurate yield calculations that account for the timing of coupon payments and settlement dates, critical for precise bond valuation in real trading scenarios.
Use Goal Seek or Solver to find the break-even purchase price for a target yield, working backwards from your required return to determine maximum purchase prices.
Impact : Enables systematic bond screening and automated portfolio construction based on yield requirements, supporting data-driven investment decision-making at scale.
Useful Combinations
Bond Valuation with YIELD and PRICE
=PRICE(DATE(2024,1,15), DATE(2029,1,15), 0.045, YIELD(DATE(2024,1,15), DATE(2029,1,15), 0.045, 98.50, 100, 2), 100, 2)This combination uses YIELD to calculate the current yield, then feeds it into PRICE to verify the bond's fair value. This is useful for bond traders to confirm pricing consistency and identify arbitrage opportunities between calculated and market prices.
Yield Comparison with IF and YIELD
=IF(YIELD(DATE(2024,1,15), DATE(2029,1,15), 0.045, 98.50, 100, 2) > 0.04, "BUY", "HOLD")This formula creates an investment decision rule by comparing the calculated yield to a target return threshold. If YIELD exceeds 4%, the formula recommends BUY; otherwise HOLD. This automates bond screening in portfolio management.
Yield Spread Analysis with Multiple YIELD Functions
=YIELD(DATE(2024,1,15), DATE(2029,1,15), 0.045, 98.50, 100, 2) - YIELD(DATE(2024,1,15), DATE(2029,1,15), 0.032, 102.25, 100, 2)This combination calculates the yield spread (OAS equivalent) between two different bonds, showing the additional return premium for taking on additional risk. Essential for relative value analysis and bond selection decisions in portfolio construction.
Common Errors
Cause: The settlement date is on or after the maturity date, or the calculated yield cannot be determined within the function's iteration limits. This occurs when parameters create an impossible bond valuation scenario.
Solution: Verify that settlement < maturity. Check that the price, coupon rate, and redemption values are realistic and consistent with each other. Ensure all values are positive numbers. If parameters are correct but error persists, the bond may have no mathematically valid yield solution.
Cause: One or more parameters are not recognized as valid numbers or dates. This typically happens when text is provided instead of numeric values, or dates are formatted incorrectly and not recognized by Excel.
Solution: Verify all date parameters are actual Excel date values or properly formatted date strings. Convert all percentage rates to decimals (5% = 0.05). Ensure price and redemption values are entered as numbers without currency symbols. Use DATE() function for date parameters to guarantee proper formatting.
Cause: A cell reference in the formula points to a deleted or invalid cell, or the formula references cells from a closed workbook that are no longer accessible.
Solution: Check all cell references in the formula are correct and point to existing cells. Ensure any referenced workbooks are open. Rewrite the formula using direct values or re-establish correct cell references. Verify the worksheet structure hasn't changed since the formula was created.
Troubleshooting Checklist
- 1.Verify settlement date is before maturity date (settlement < maturity); reverse dates cause #NUM! error
- 2.Confirm all date values are recognized as Excel dates using DATE() function, not text strings that may not parse correctly
- 3.Ensure rate parameter is expressed as a decimal (0.05 for 5%, not 5) and all numeric parameters are positive numbers
- 4.Check frequency parameter matches actual coupon payment schedule: 1=annual, 2=semi-annual, 4=quarterly; mismatched frequencies cause incorrect calculations
- 5.Verify basis parameter aligns with security type: 0 for corporate bonds, 1 for government securities, 2 for money market instruments
- 6.Confirm price and redemption values are realistic (typically between 50 and 150 per $100 face value); extreme values may cause convergence failures
Edge Cases
Settlement and maturity dates are very close (less than one coupon period)
Behavior: YIELD may return unexpectedly high or low values because the bond has minimal coupon payment periods remaining, and accrued interest becomes significant relative to remaining cash flows
Solution: Verify the dates are correct and intended. Consider using YIELDMAT if the security matures within the current coupon period. Manually review the result for reasonableness.
This scenario is common for bonds approaching maturity in secondary market trading
Price equals redemption value (bond trading at par, typically 100)
Behavior: YIELD should approximately equal the coupon rate, though exact equality depends on settlement date within the coupon period and day-count basis
Solution: This is expected behavior. The yield at par should be close to the coupon rate; small differences reflect accrued interest timing and day-count conventions.
This is a good validation check: if par bond yields significantly differ from coupon rate, verify parameter accuracy
Premium bond (price > 100) with high coupon rate or discount bond (price < 100) with low coupon rate
Behavior: YIELD correctly returns lower yield for premium bonds and higher yield for discount bonds, reflecting the inverse relationship between price and yield
Solution: This is correct mathematical behavior. Premium bonds have lower yields because investors pay more upfront; discount bonds have higher yields as compensation for lower price
This relationship is fundamental to bond mathematics and should always hold true for properly formatted YIELD calculations
Limitations
- •YIELD assumes all coupon payments are reinvested at the calculated yield rate, which may not reflect actual reinvestment opportunities in changing interest rate environments
- •The function cannot handle callable bonds, convertible bonds, or other complex securities with embedded options that may alter cash flow timing or amounts
- •YIELD returns #NUM! error if no mathematically valid solution exists within the function's iteration limits, which can occur with extreme or unrealistic parameter combinations
- •The function assumes regular coupon payment intervals and cannot accommodate bonds with irregular coupon dates, variable coupon rates, or step-up/step-down coupons
Alternatives
More flexible function that can handle irregular cash flows and custom payment schedules not limited to standard coupon frequencies.
When: Use IRR when analyzing bonds with irregular coupon dates, callable bonds with multiple scenarios, or complex security structures with non-standard payment patterns.
Compatibility
✓ Excel
Since 2007
=YIELD(settlement, maturity, rate, pr, redemption, frequency, [basis]) - Fully supported in Excel 2007, 2010, 2013, 2016, 2019, and 365✓Google Sheets
=YIELD(settlement, maturity, rate, pr, redemption, frequency, [basis]) - Identical syntax and functionalityGoogle Sheets uses the same YIELD function with identical parameters. All examples and formulas translate directly without modification.
✓LibreOffice
=YIELD(settlement, maturity, rate, pr, redemption, frequency, [basis]) - Fully compatible with LibreOffice Calc