Bond Yield Calculator

Calculate current yield and yield to maturity (YTM) for bonds. Analyze your bond investment returns including coupon payments and capital gains.

Bond Details

$

Usually $1,000

%

Annual coupon rate

$

What you pay for the bond

yrs

Enter bond details and click "Calculate" to analyze the yield.

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Pro Tip

When interest rates are expected to fall, buying bonds locks in current yields and positions you for capital gains as bond prices rise. Long-duration bonds are more sensitive to rate changes.

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Understanding Bond Yields

Bond yield is the return an investor realizes on a bond investment. There are multiple ways to measure yield, each providing different insights. The two most common are current yield and yield to maturity (YTM).

Current yield is simply the annual coupon payment divided by the current market price. It tells you the annual income return at the current price, but ignores the capital gain or loss at maturity and the time value of money.

Yield to Maturity (YTM) is the most comprehensive measure. It is the internal rate of return earned if you hold the bond to maturity, reinvesting all coupon payments at the same rate. YTM accounts for coupon payments, the difference between purchase price and face value, and the time to maturity.

When a bond trades below face value (at a discount), YTM exceeds the coupon rate because you receive face value at maturity, earning a capital gain. When it trades above face value (at a premium), YTM is less than the coupon rate due to the capital loss at maturity.

Bond Yield Formulas

Current Yield = Annual Coupon / Purchase Price
YTM ≈ [C + (F − P)/n] / [(F + P)/2]

Where:

C = Annual coupon payment (Face Value x Coupon Rate)

F = Face value (par value) of the bond

P = Purchase price of the bond

n = Years to maturity

Example

$1,000 face value bond, 5% coupon, purchased at $950, 10 years to maturity:

  • • Annual coupon: $1,000 x 5% = $50
  • • Current yield: $50 / $950 = 5.26%
  • • YTM approx: [$50 + ($50/10)] / [($1,000 + $950)/2] = 5.64%
  • • Total coupon payments: $50 x 10 = $500
  • • Capital gain at maturity: $1,000 - $950 = $50

Frequently Asked Questions

What is the difference between coupon rate and yield?
The coupon rate is the fixed annual interest rate set when the bond is issued, based on face value. Yield varies based on the market price. If you buy at face value, they are equal. At a discount, yield exceeds the coupon rate; at a premium, yield is lower.
Why do bond prices move opposite to interest rates?
When interest rates rise, new bonds offer higher yields, making existing lower-coupon bonds less attractive. Their prices drop to bring yields in line with new bonds. Conversely, when rates fall, existing higher-coupon bonds become more valuable.
What is yield to maturity (YTM)?
YTM is the total return anticipated if the bond is held until it matures. It accounts for all coupon payments, the gain or loss from buying at a price different from face value, and reinvestment of coupons. It is the bond's internal rate of return.
Is a higher yield always better?
Not necessarily. Higher yields often indicate higher risk. Junk bonds offer higher yields because there is a greater chance the issuer may default. Always consider credit ratings, duration, and your risk tolerance when evaluating bond investments.