Finance

Bond Yield Calculator

Calculate yield to maturity, current yield, and total return on bonds.

Quick Answer

A $1,000 face value bond with 5% coupon bought at $950 with 10 years to maturity has a current yield of 5.26% and a yield to maturity of approximately 5.58%.

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Disclaimer: This calculator provides theoretical yield calculations assuming the bond is held to maturity and coupons are reinvested at the YTM rate. Actual returns depend on reinvestment rates, credit risk, and market conditions. This is not investment advice.

About This Tool

The Bond Yield Calculator computes two key metrics for evaluating bond investments: current yield and yield to maturity (YTM). Current yield is the simple ratio of annual coupon to price. YTM is the more comprehensive measure that accounts for coupon payments, price appreciation or depreciation, and the time value of money.

Understanding these yields is essential for comparing bonds with different coupons, prices, and maturities on an apples-to-apples basis. A bond with a 3% coupon trading at a deep discount might actually offer a higher total return than a 5% coupon bond trading at a premium.

How YTM Is Calculated

YTM solves for the discount rate that makes the present value of all future cash flows (coupons + face value) equal to the current price. There is no closed-form solution, so this calculator uses an iterative bisection method to find the rate. The YTM assumes all coupon payments are reinvested at the same rate, which is a simplification but the standard approach.

Frequently Asked Questions

What is yield to maturity (YTM)?
Yield to maturity is the total annual return you earn if you buy a bond at its current market price and hold it until maturity, assuming all coupon payments are reinvested at the same rate. YTM accounts for the coupon payments, the time value of money, and any capital gain or loss at maturity. It is the most comprehensive measure of a bond's expected return.
What is the difference between current yield and YTM?
Current yield only considers the annual coupon payment relative to the bond's current price (coupon / price). It ignores capital gains or losses at maturity and the time value of money. YTM includes everything -- coupon payments, price appreciation or depreciation to face value, and reinvestment of coupons. For bonds trading at par, current yield and YTM are roughly equal.
Why do bond prices move opposite to yields?
When interest rates rise, new bonds offer higher coupons, making existing lower-coupon bonds less attractive -- so their price drops to compensate buyers with a higher yield. Conversely, when rates fall, existing higher-coupon bonds become more valuable, pushing their prices up. This inverse relationship is fundamental to bond investing and creates both risk and opportunity.
What is a bond premium vs discount?
A bond trades at a premium when its price is above face value (happens when coupon rate exceeds market rates). It trades at a discount when below face value (coupon rate is below market rates). At par means the price equals face value. Premium bonds have YTM lower than their coupon rate; discount bonds have YTM higher than their coupon rate.
How does bond maturity affect yield?
Longer-maturity bonds typically offer higher yields to compensate for greater interest rate risk and uncertainty (the yield curve). A 10-year bond usually yields more than a 2-year bond. However, longer maturities also mean more price volatility when rates change. Duration measures this sensitivity -- a bond with 10-year duration loses about 10% in value for every 1% rate increase.

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