Bond Yield Calculator
Calculate bond current yield and yield to maturity (YTM) from face value, coupon rate, market price, and time to maturity.
Bond Yield Calculator
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Formula: Current Yield = Annual Coupon / Price | YTM ≈ [C + (F-P)/n] / [(F+P)/2]
Worked example — YTM ≈ 5.64%
Formula
Current Yield = Annual Coupon / Price | YTM ≈ [C + (F-P)/n] / [(F+P)/2]
Current yield is annual income / price. Yield to Maturity (YTM) accounts for the gain/loss if held to maturity. The approximation formula gives a close estimate.
Worked Examples
Example 1: Corporate bond
Problem:$1000 face, 5% coupon, price $950, 10 years
Solution:CY = 50/950 = 5.26%. YTM ≈ (50+5)/975 = 5.64%
Result:YTM ≈ 5.64%
Frequently Asked Questions
Why does bond price move opposite to yield?
When interest rates rise, existing bonds with lower coupons become less attractive, so their price drops to bring the yield up to market rates.
What is the difference between current yield and yield to maturity?
Current yield is simply the annual coupon payment divided by the current market price, expressed as a percentage. It only measures income return and ignores the capital gain or loss you receive when the bond matures at face value. Yield to maturity (YTM) is a more complete measure that accounts for both the coupon income and the price difference between what you paid and what you will receive at maturity, assuming you hold the bond until it matures and reinvest coupons at the same rate.
What does it mean when a bond trades at a premium or discount?
A bond trades at a premium when its market price is above its face value, which happens when the coupon rate is higher than current market interest rates. Investors are willing to pay more because the bond pays more income than newly issued bonds. A bond trades at a discount when its price is below face value because its coupon rate is lower than prevailing rates, making it less desirable. At maturity, the bondholder always receives the face value regardless of what they paid, creating a capital loss (premium) or capital gain (discount).
What risks should I consider when investing in bonds?
Key bond risks include interest rate risk (prices fall when rates rise, and longer-duration bonds are more sensitive), credit or default risk (the issuer may fail to make payments, rated by agencies like Moody's and S&P), inflation risk (fixed coupon payments lose purchasing power if inflation rises), liquidity risk (some bonds are hard to sell quickly without a large price concession), and call risk (the issuer may redeem the bond early when rates fall, forcing reinvestment at lower rates). US Treasury bonds eliminate credit risk but are still subject to interest rate and inflation risk.
What is duration and how does it estimate a bond's price move?
Modified duration measures price sensitivity to yield: the approximate percentage price change equals minus duration multiplied by the change in yield in percentage points. A bond with a modified duration of 7 falls roughly 7 percent if yields rise by one point, and rises by about the same if they fall. Duration increases with maturity and decreases with a higher coupon, because a large coupon returns cash sooner. Convexity means the estimate understates gains and overstates losses for large yield moves.
Why is the yield-to-maturity formula on this page an approximation?
True yield to maturity is an internal rate of return: the single discount rate that makes the present value of all remaining coupons plus the redemption payment equal the market price, which has to be solved iteratively. The shortcut used here amortises the premium or discount in a straight line over the remaining years and divides by the average of face value and price. That is close for bonds near par with moderate maturities, and drifts further from the exact answer as the discount deepens or the term lengthens.
What is yield to call, and when should I use it instead of yield to maturity?
Many corporate and municipal bonds are callable, letting the issuer redeem early at a stated call price. Yield to call runs the same calculation but substitutes the call date for maturity and the call price for face value. Issuers call when rates have fallen and they can refinance cheaply, which is precisely when you would least like your bond returned. For a bond trading above par, quote yield to worst - the lower of yield to maturity and the yields to each call date.
How do coupon frequency and accrued interest affect what I actually pay?
Most bonds pay semi-annually, so a 5 percent coupon on 1,000 face value is two payments of 25 dollars rather than one of 50, and the earlier cash slightly raises the effective return. When you buy between coupon dates you also pay accrued interest to the seller for the days they held it. The quoted clean price excludes that; the dirty or invoice price you settle includes it. You get it back at the next coupon, so it is a timing item rather than a cost.
What does a bond's yield spread over Treasuries indicate?
The spread is the yield on a bond minus the yield on a government security of similar maturity, and it is the market's price for everything the Treasury does not carry: default risk, liquidity, call features and tax treatment. Lower-rated issuers pay wider spreads. Spreads are not static - they widen across the market when investors turn risk-averse, which means a corporate bond can fall in price even while Treasury yields are unchanged. Watching the spread separates credit moves from interest rate moves.
How does reinvestment risk affect the return I actually earn?
Yield to maturity assumes every coupon is reinvested at the yield to maturity itself until the bond matures. That rarely happens: coupons received in a falling rate environment are reinvested at lower rates, so the realised compound return comes in below the quoted yield, and the opposite occurs when rates rise. The effect grows with the coupon size and the term. Zero-coupon bonds sidestep it entirely, since there is nothing to reinvest before redemption.
References
Reviewed for accuracy by Sahil, Senior Finance & Tax Editor · Editorial policy
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