Bond Yield Calculator
Print| Current Yield | 0.00% |
| Annual Coupon Amount | $0.00 |
When evaluating fixed-income investments, relying solely on the printed coupon rate provides an incomplete view of profitability. Because secondary market bonds trade at discounts or premiums to face value, investors must measure yield relative to actual market purchase prices. The two primary metrics for assessing fixed-income returns are Current Yield and Yield to Maturity (YTM).
Our free Bond Yield Calculator solves for Current Yield, approximate Yield to Maturity, and overall holding period returns across any corporate or government bond holding.
How to Calculate Bond Yields
Current yield measures immediate cash return, while Yield to Maturity calculates total annualized return including capital gains or losses upon maturity.
1. Current Yield Formula:
Current Yield (%) = ( Annual Coupon Payment / Current Market Bond Price ) × 100
2. Approximate Yield to Maturity (YTM) Formula:
Approx YTM (%) = [ C + ( ( Par Value - Market Price ) / t ) ] / [ ( Par Value + Market Price ) / 2 ] × 100
- C: Total annual coupon payment ($).
- Par Value: Principal paid at maturity (typically $1,000).
- Market Price: Current open market purchase price of the bond.
- t: Total years remaining until maturity.
Step-by-Step Discount Bond Example
Suppose an investor purchases a 4-year corporate bond with a $1,000 Par Value and a 5.00% annual coupon rate ($50.00 annual payment) trading at a discounted market price of $950.00.
Let’s calculate both Current Yield and approximate Yield to Maturity (YTM):
Current Yield = ($50.00 / $950.00) × 100 = 5.26%
YTM Approximation Step-by-Step:
Annual Principal Gain = ($1,000 - $950) / 4 years = $50 / 4 = $12.50 / year
Numerator (Income + Gain) = $50.00 + $12.50 = $62.50
Denominator (Average Value) = ($1,000 + $950) / 2 = $975.00
Approximate YTM = ($62.50 / $975.00) × 100 = 6.41%
| Bond Yield Metric | Formula Focus | Calculated Value | Investor Significance |
|---|---|---|---|
| Stated Coupon Rate | Nominal Contract Rate | 5.00% | Fixed coupon income relative to par |
| Current Yield | Annual Coupon / Purchase Price | 5.26% | Immediate annual cash flow return |
| Yield to Maturity (YTM) | Coupons + Principal Discount Gain | 6.41% YTM | Total annualized return if held to maturity |
Frequently Asked Questions (FAQ)
What is the difference between Current Yield and Yield to Maturity (YTM)?
Current Yield measures only immediate annual cash coupon income relative to current price. Yield to Maturity (YTM) is the comprehensive internal rate of return (IRR) that includes coupon payments AND the capital gain or loss realized when the bond matures at full par value ($1,000).
Why is YTM higher than Current Yield for a discount bond?
When you buy a bond at a discount (e.g., $950), you receive annual coupon cash flow plus an additional $50 capital gain when the issuer repays full $1,000 face value at maturity. YTM factors in this $50 principal gain, pulling total annualized return above current yield.
Does YTM assume coupon payments are reinvested?
Yes. Mathematical YTM models assume that all semi-annual coupon payments are automatically reinvested at a rate equal to the YTM itself until the bond matures.