This bond yield calculator estimates the current bond yield value by considering the its clean price, bond's face value and its coupon rate (interest rate). There is in depth information on how to calculate this indicator below the tool.
How does this bond yield calculator work?
The algorithm behind this bond yield calculator takes account of these variables:
- Bond's current clean price is the market selling price today;
- Bond’s face value (nominal value) which is its book value;
- Bond’s coupon rate (interest rate).
The equations that the algorithm is based on are:
- Current bond yield = Annual interest payment / Bond's current clean price
- Annual interest payment = Bond’s face value * Bond’s coupon rate (interest rate) * 0.01. Please remember that the coupon rate is in decimal format thus it should be multiplied with 0.01 to convert it from percent.
What is bond yield?
In finance theory, the bond yield is a concept that refers to the rate of return an investor may obtain by holding a bond. Some use the nominal yield, which is computed by dividing the amount of interest by the face value of the bond. On the other hand, the current yield is determined by dividing the amount of interest it pays by the market clean price of the bond.
The concept is very often referred to as bonds represent a category of safe financial instruments.
This indicator that demonstrates the amount of return, is inverse to the price of the bond, thus when bond prices increase, their yields decrease.
Example of a calculation
Let’s assume a portfolio of bonds with the following characteristics:
- Current clean price = $100,000
- Bonds nominal value = $65,000
- Coupon rate = 5% and figure out the results:
■ Current bond yield = 3.25%
■ Annual interest payment = $3,250.0023 Feb, 2015