Bond Current Yield Calculator
What is Bond Current Yield?
The Bond Current Yield, also known as the current yield, is a financial metric representing the annual return you can expect from investing in a bond, based on its current market price. It's a useful tool for assessing the effectiveness of an investment especially in bonds. Essentially, the bond current yield is an indicator of the annual returns compared to the bond price. This is similar to the dividend yield of a stock.
The bond current yield is more conservative in its measure as bond coupon payments are fixed until bond maturity, unlike dividends which can vary. In general, a higher bond current yield indicates a safer bond investment.
How to use Bond Current Yield Calculator?
Using a Bond Current Yield Calculator involves the following steps:
Determine the bond's face value, coupon payment per period, coupon frequency, coupon rate, and bond price.
To calculate the annual coupon payment, either multiply the coupon payment per period by the coupon frequency, or multiply the face value of the bond by the coupon rate. Both methods give the same result.
Finally, use the bond current yield formula to calculate the bond current yield:
bond current yield = annual coupon / bond price
An actual example to demonstrate the calculator
Let's consider an example: Bond A is issued by Company Alpha with the following details:
Face value: $1,000
Coupon payment per period: $25
Coupon frequency: Semi-annual (present twice a year)
Coupon rate: 5%
Bond price: $900
Using these details, the bond current yield can be calculated in the following steps:
First, calculate the annual coupon. Since Bond A is a semi-annual coupon bond, its coupon frequency is 2. The annual coupon for Bond A is therefore 2 * $25 = $50.
Next, determine the bond price. In this case, the bond price is $900.
Finally, apply the bond current yield formula:
bond current yield = annual coupon / bond priceFor this example, the bond current yield of Bond A is $50 / $900 = 5.56%.
This tells us that if you invest in Bond A based on a price of $900, you would have an annual return rate of 5.56%.