Bond Yield Calculator
About Bond Yield Calculator
Understanding Bond Yields
Bond yield measures the return you earn from holding a bond. The current yield is simply the annual coupon payment divided by the bond’s current market price. Yield to maturity (YTM) is more comprehensive – it accounts for coupon payments, the gain or loss from buying the bond above or below face value, and the time remaining until maturity. YTM is the single most important metric for comparing bonds because it reflects the total expected return if you hold the bond to maturity.
Bond Yield Formulas
Current Yield = Annual Coupon / Market Price x 100. YTM requires an iterative calculation, but the approximation formula is: YTM = (Coupon + (Face Value - Price) / Years) / ((Face Value + Price) / 2). This calculator uses both the approximation and a more precise iterative method for accuracy.
How to Use This Calculator
Enter the bond’s face value (typically $1,000), the annual coupon rate, the current market price, and the years remaining until maturity. Click Calculate to see both the current yield and the yield to maturity. The calculator also shows total coupon income over the remaining life and whether the bond is trading at a premium or discount.
Frequently Asked Questions
What is the difference between current yield and YTM?
Current yield only considers coupon income relative to the bond price. YTM also factors in capital gains or losses from buying above or below face value and the time to maturity.
Why do bond prices move opposite to yields?
When interest rates rise, existing bonds with lower coupon rates become less attractive, so their prices fall. When rates decline, existing higher-coupon bonds become more valuable, pushing prices up.
What is a bond premium and discount?
A bond trading above its face value is at a premium (its coupon rate exceeds current market rates). A bond below face value is at a discount (its coupon rate is below current market rates).
