How to Calculate the Yield of a Bond

If you are comparing a bond with other potential investments, you are required to know its yield. Yield is the rate of return you get with a bond. This entire issue is not particularly complex, as by knowing some information and following some instructions, you can easily calculate the yield of a bond. Remember that the exact amount you can earn from the bond depends on the bond’s price, maturity date, coupon rate and the current interest rates.

Things Required:

– Maturity date
– Current bond price
– Coupon rate
– Online bond calculator (optional)

Instructions

  • 1

    Know the current price of the bond

    You are required to know the current price of the bond. Keep in mind that bond prices changes every day just like stock prices. You are not bound to hold your bond until it matures. You can sell or trade it like any other securities.

  • 2

    Get information of different types of bond yields

    You need to know different types of bond yields. Keep in mind that there are many ways to calculate the bond yield and each method gives a different result.

  • 3

    Know the stated interest rate or bond’s coupon rate

    You should know the bond’s stated interest rate or its coupon rate. This rate is extremely useful when comparing current yield to the actual yield for a possible investment.

  • 4

    Know the bond’s maturity date

    You are required to know the bond’s maturity date and calculate how many years are left until it is matured. By knowing the bond’s maturity date, you will have an idea about how much you can gain from that particular bond. Even if you do not want to hold the bond until it matures, knowing the maturity date will still be helpful for finding out potential gains.

  • 5

    Calculate the yield

    Calculate the simple yield by dividing bond’s interest rate by the current price of your bond. In case your bond costs $1000 and pays $100 a year in interest, then you need to divide 100 by 1000 and you will get the yield percent i.e. 10 per cent.

  • 6

    Calculate the yield to maturity

    Calculate the yield to maturity; you can do this with help of an online calculator from websites. By calculating yield to maturity, you will be calculating all the interest payments which you will receive until the bond matures.

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