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Treasury Bond Yield Formula:
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Treasury bond yield represents the return an investor will receive by holding the bond to maturity. The current yield specifically measures the annual coupon payment relative to the bond's current market price.
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 based on its current market price.
Details: Calculating bond yield is essential for investors to compare different bond investments, assess returns, and make informed investment decisions. It helps determine the income-generating potential of treasury bonds in the current market conditions.
Tips: Enter the annual coupon payment and current bond price in the same currency units. Both values must be positive numbers, with the bond price greater than zero.
Q1: What is the difference between current yield and yield to maturity?
A: Current yield only considers the annual coupon payment relative to the current price, while yield to maturity accounts for all future cash flows including principal repayment at maturity.
Q2: What are typical treasury bond yields?
A: Treasury bond yields vary based on maturity length and market conditions, typically ranging from 1% to 6% for current yields, depending on economic factors.
Q3: Why does bond price affect yield?
A: When bond prices rise, yields fall because the fixed coupon payment represents a smaller percentage of the higher price. Conversely, when prices fall, yields rise.
Q4: Is current yield the same as coupon rate?
A: No, coupon rate is fixed based on the bond's face value, while current yield changes with market price fluctuations.
Q5: How often are coupon payments made?
A: Most treasury bonds make semi-annual coupon payments, so the annual coupon payment is twice the semi-annual payment amount.