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Bond Yield Formula:
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Bond yield is the return an investor realizes on a bond investment. The current yield represents the annual coupon payment divided by the current market price of the bond, expressed as a percentage.
The calculator uses the current yield formula:
Where:
Explanation: This formula calculates the simple current yield, which represents the annual income return on the bond investment relative to its current market price.
Details: Calculating bond yield is essential for investors to compare different bond investments, assess income potential, and make informed investment decisions based on current market conditions.
Tips: Enter the annual coupon payment and current market price in the same currency. Both values must be positive numbers greater than zero for accurate calculation.
Q1: What is the difference between current yield and yield to maturity?
A: Current yield only considers the annual coupon payment relative to price, while yield to maturity accounts for all future cash flows including principal repayment at maturity.
Q2: Why does bond yield move inversely to bond price?
A: When bond prices rise, the fixed coupon payment represents a smaller percentage of the higher price, resulting in lower yield, and vice versa.
Q3: What factors affect bond yields?
A: Interest rates, credit risk, inflation expectations, time to maturity, and overall market conditions all influence bond yields.
Q4: Is higher yield always better?
A: Not necessarily. Higher yields often indicate higher risk. Investors should consider both yield and risk when making investment decisions.
Q5: How often is coupon paid?
A: Most bonds pay coupons semi-annually, but the calculator uses annual coupon payment for simplicity in current yield calculation.