Bond Yield Calculator From Price

Bond Yield Formula:

\[ Yield \approx \frac{C}{P} + \frac{F - P}{P \times n} \]

Annual Coupon Payment (C):

currency units

Bond Price (P):

currency units

Face Value (F):

currency units

Years to Maturity (n):

years

Approximate Yield to Maturity:

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is Bond Yield Calculation?

The bond yield calculation approximates the yield to maturity (YTM) from the bond's current price, coupon payments, face value, and time to maturity. This formula provides a quick estimate of the annual return an investor can expect from holding the bond until maturity.

2. How Does the Calculator Work?

The calculator uses the bond yield approximation formula:

\[ Yield \approx \frac{C}{P} + \frac{F - P}{P \times n} \]

Where:

\( Yield \) — Approximate yield to maturity (decimal)
\( C \) — Annual coupon payment (currency units)
\( P \) — Current bond price (currency units)
\( F \) — Face value of the bond (currency units)
\( n \) — Years to maturity (years)

Explanation: The formula combines the current yield (C/P) with the capital gain/loss component ((F-P)/(P×n)) to estimate the total annual return.

3. Importance of Bond Yield Calculation

Details: Bond yield calculation is essential for investors to compare different bond investments, assess risk-return profiles, and make informed investment decisions. It helps determine whether a bond is trading at a premium or discount to its face value.

4. Using the Calculator

Tips: Enter all values in the same currency units. Ensure bond price and years to maturity are positive values. The calculator will provide the yield as a percentage.

5. Frequently Asked Questions (FAQ)

Q1: What is the difference between current yield and yield to maturity?
A: Current yield only considers coupon payments relative to price, while YTM includes both coupon payments and capital gains/losses over the bond's remaining life.

Q2: Why is this an approximation rather than exact YTM?
A: This formula assumes linear amortization of premium/discount and doesn't account for the time value of money or compounding effects that the exact YTM calculation considers.

Q3: When is this approximation most accurate?
A: The approximation works best for bonds trading close to par value and with shorter maturities. For deep discount or premium bonds, the exact YTM calculation is more appropriate.

Q4: How does bond price affect yield?
A: When bond price is below face value (discount), yield is higher than coupon rate. When price is above face value (premium), yield is lower than coupon rate.

Q5: Can this formula be used for zero-coupon bonds?
A: For zero-coupon bonds (C=0), the formula simplifies to (F-P)/(P×n), which provides a reasonable approximation of the yield.