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Bond Yield Calculator

Current yield equals the annual coupon payment divided by the market price. Yield to maturity (YTM) accounts for all future cash flows including coupon payments and the return of face value at maturity. A $1,000 bond with a 5% coupon rate trading at $950 has a current yield of approximately 5.26% and an estimated YTM of approximately 5.66% over 10 years with semi-annual payments. Enter your bond details below to calculate both yield measures.

Quick Answer

A $1,000 bond with a 5% coupon at $950 has a current yield of approximately 5.26% and an estimated YTM of approximately 5.66% over 10 years. At par ($1,000), the YTM approximately equals the coupon rate.

Common Examples

Input Result
Face $1,000, 5% coupon, market price $950, 10 years, semi-annual Estimated current yield: 5.26%, estimated YTM: 5.66%
Face $1,000, 5% coupon, market price $1,000, 10 years Estimated current yield: 5.00%, estimated YTM: 5.00%
Face $1,000, 5% coupon, market price $1,050, 10 years Estimated current yield: 4.76%, estimated YTM: 4.33%
Face $1,000, 0% coupon (zero-coupon), market price $500, 10 years Estimated YTM: 7.05%

How It Works

Current yield is the simplest yield measure. It divides the annual coupon payment by the current market price:

Current Yield = (Face Value x Coupon Rate) / Market Price x 100

For a $1,000 bond with a 6% coupon trading at $960: annual coupon = $60, current yield = 60 / 960 x 100 = 6.25%.

Yield to maturity (YTM) is the more complete measure. It is the discount rate that makes the present value of all future cash flows equal to the bond’s current market price. The bond pricing formula is:

P = C/(1+r) + C/(1+r)^2 + … + C/(1+r)^n + F/(1+r)^n

Where:

  • P = current market price
  • C = coupon payment per period
  • F = face value
  • r = yield per period
  • n = total number of periods

Because r appears in every term as an exponent, there is no closed-form algebraic solution. This calculator uses the bisection method: it repeatedly narrows a range of yield guesses until the computed price matches the market price within a very small tolerance.

Premium, par, and discount bonds:

  • When price > face value, the bond trades at a premium and YTM < coupon rate
  • When price = face value, the bond trades at par and YTM = coupon rate
  • When price < face value, the bond trades at a discount and YTM > coupon rate

Worked example

A $1,000 face value bond with a 6% annual coupon rate trades at $960 with 5 years to maturity, paying semi-annually. The annual coupon is $60, paid as $30 every six months. Current yield = 60 / 960 x 100 = 6.25%. Solving iteratively, the estimated YTM is approximately 6.95% annually. The bond trades at a discount because the yield demanded by the market (6.95%) exceeds the coupon rate (6%).

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Frequently Asked Questions

What is the difference between current yield and yield to maturity?
Current yield only accounts for the coupon income relative to the market price. It ignores the gain or loss you receive at maturity when the bond repays face value. YTM includes both the coupon payments and the difference between the purchase price and face value, spread over the life of the bond. For a discount bond, YTM will always be higher than current yield because you gain additional return when the bond matures at face value.
What is a discount bond versus a premium bond?
A bond trades at a discount when its market price is below its face value, which happens when market interest rates have risen above the coupon rate. A bond trades at a premium when its price exceeds face value, which happens when rates have fallen below the coupon rate. At maturity, all bonds repay face value regardless of the market price paid.
What is the coupon rate?
The coupon rate is the fixed annual interest rate stated on the bond at issuance, expressed as a percentage of face value. A $1,000 bond with a 5% coupon rate pays $50 per year in interest, typically in semi-annual installments of $25. The coupon rate does not change over the life of the bond, but the yield changes as the market price fluctuates.
How does payment frequency affect yield?
More frequent compounding periods produce a slightly different effective yield. A semi-annual bond paying $25 twice per year is mathematically different from an annual bond paying $50 once per year, because the first semi-annual payment can be reinvested for the second half of the year. In practice the difference is small, but this calculator applies the correct periodic compounding for each frequency.
What is a zero-coupon bond?
A zero-coupon bond pays no periodic interest. It is issued at a deep discount to face value and matures at par. The entire return comes from the difference between the purchase price and face value. For example, a $1,000 zero-coupon bond purchased for $500 with 10 years to maturity has an estimated YTM of approximately 7.18%. Zero-coupon bonds are especially sensitive to interest rate changes because all cash flow occurs at maturity.