Zero coupon bonds do not have reoccurring interest payments, which makes their yield to maturity calculations different from bonds with a coupon rate. Most time value of money formulas require some interest rate figures for each point in time. This makes the yield to maturity easier to calculate for zero coupon bonds, because there are no coupon payments to reinvest, making it equivalent to the normal rate of return on the bond.
The formula for calculating the yield to maturity on a zero coupon bond is:
Yield to Maturity = (Face Value / Current Price of Bond) ^ (1 / Years to Maturity)  1
For example, consider a $1,000 zero coupon bond that has two years until maturity. The bond is currently valued at $925 (the price it could be purchased at today). The formula would look like: (1000 / 925) ^ (1 / 2)  1. When solved, this equation produces a value of 0.03975, which would be rounded and listed as a yield of 3.98%.
The yield to maturity may change from year to year for any bond, depending on changes in the overall demand for bonds in the market. Consider what would happen if investors become more willing to hold bonds due to economic uncertainty. Bond prices would probably rise, which would increase the denominator in the yield to maturity formula, thereby reducing the yield.
Yield to maturity is a basic investing concept that is used to compare bonds of different coupons and time until maturity. Without accounting for any interest payments, zero coupon bonds always have a yield to maturity equal to their normal rate of return. The yield to maturity for zero coupon bonds is sometimes referred to as the spot rate.

Why do zero coupon bonds tend to be volatile?
Learn why the price of zero coupon bonds is volatile and why some investors may wish to hold them in retirement accounts ... Read Answer >> 
How do debit spreads impact the trading of options?
Find out what it means when a bond has a coupon rate of zero and how a bond's coupon rate and par value affect its selling ... Read Answer >> 
Can the marginal propensity to consume ever be negative?
Find out when a bond's yield to maturity is equal to its coupon rate, and learn about the basic components of bonds and how ... Read Answer >> 
What types of fees apply to checking accounts?
Learn about the difference between a bond's coupon rate and its yield to maturity, and how the par value, coupon rate and ... Read Answer >>

Investing
How Do I Calculate Yield To Maturity Of A Zero Coupon Bond?
Yield to maturity is a basic investing concept used by investors to compare bonds of different coupons and times until maturity. 
Investing
Explaining the Coupon Rate
Coupon rate is the stated interest rate on a fixed income security. 
Financial Advisor
Using Excel PV Function to compute Bonds PV
To determine the value of a bond today  for a fixed principal (par value) to be repaid in the future at any predetermined time  we can use an Excel spreadsheet. 
Investing
If I Buy A $1,000 10Year Bond With A 10% Coupon, Will I Receive $100 Each Year?
Investors can count on a fixedincome security paying them a certain amount of cash as long as the security is held until maturity and the issuer doesn’t default. 
Investing
Understanding the Different Types of Bond Yields
Any investor, private or institutional, should be aware of the diverse types and calculations of bond yields before an actual investment. 
Investing
What is a "Coupon"?
In the financial world, “coupon” represents the interest rate on a bond. 
Managing Wealth
How Bond Prices and Yields Work
Understanding bond prices and yields can help any investor in any market. 
Investing
Calculating Yield to Worst
Yield to worst is the lowest possible yield on a bond that may be called in the future.

ZeroCoupon Bond
A zerocoupon bond is a debt security that doesn't pay interest ... 
Coupon
The annual interest rate paid on a bond, expressed as a percentage ... 
Coupon Bond
A debt obligation with coupons attached that represent semiannual ... 
Bunny Bond
A type of bond that offers investors the option to reinvest coupon ... 
Yield To Maturity (YTM)
Yield to maturity (YTM) is the total return expected on a bond ... 
Effective Yield
The yield of a bond, assuming that you reinvest the coupon (interest ...