Understanding Bond Yields
Bond yields measure the return on a bond investment. Current yield = annual coupon / market price. Yield to maturity = total return if held to maturity.
Key Bond Terms
| Term | Definition |
|---|---|
| Face Value | Amount paid at maturity, typically $1,000 |
| Coupon Rate | Annual interest as % of face value |
| Market Price | What you pay today |
| YTM | Total return if held to maturity |
Bond prices and yields move inversely. When interest rates rise, bond prices fall and yields rise.
How to Use This Bond Yield Calculator
Enter the bond's face value, coupon rate, current market price, and years to maturity. The calculator computes current yield and yield to maturity (YTM).
Formula & How It Works
Current Yield = Annual Coupon / Market Price. YTM is solved iteratively: Price = Ξ£ [Coupon / (1+YTM)^t] + Face Value / (1+YTM)^n.
Calculation Example
A $1,000 bond with 5% coupon trading at $950 with 10 years left: Current Yield = $50/$950 = 5.26%. YTM β 5.63% (higher because you gain $50 at maturity).
Expert Tips
When market price < face value, YTM > coupon rate (discount bond). When price > face value, YTM < coupon rate (premium bond). Compare YTM across bonds for fair comparison.
Frequently Asked Questions
What is a good bond yield?
Depends on type and rates. US Treasury 10-year bonds yield 3-5%. Corporate bonds yield more based on credit risk. Compare to inflation for real return.
Why is YTM different from current yield?
Current yield only considers coupon payment relative to price. YTM includes gain/loss from buying at discount/premium and time value of money.
Are bond yields taxable?
Yes, coupon payments are taxed as ordinary income. Municipal bond interest is generally exempt from federal tax.