Bond Yield Calculator
With Calcopolis, you can easily determine the return rate of investment in bonds.
Are you thinking of diversifying your portfolio with new investments? If so, investing in bonds is probably one of your safest options.
Before you spend your hard-earned cash on bonds, you must refer to a reliable yield calculator to get a better idea of the expected return.
This is where the Calcopolis bond yield comes in handy!
Read on to learn more about how bond prices work, the factors that affect them, and what that means for a bond's yield.
What Is Bond Yield?
When you make any investment, you want to have a clear idea of what the return on investment is expected to be. This is exactly what a bond's yield tells you.
A bond's yield is the expected annual return from the bond throughout its term and up to its maturity date. It's the proportion of the bond price that you'll get back in interest per period. It also factors in the original amount paid that you get back at maturity.
How to Calculate Bond Yield
There are two types of bond yield. We've outlined how to calculate each one below:
How to Calculate Current Yield
The first step is to figure out the current going price of the bond.
Once you've done so, you need to calculate the annual coupon. This figure depends on your bond's coupon rate, the bond's period, and other factors.
To calculate the current bond yield, divide the annual coupon by the current bond market price. This'll give you the current yield as a percentage.
Here's the formula:
Current Bond Yield = Coupon Rate / Current Bond Price
How to Calculate Yield to Maturity
To calculate the yield to maturity, you should use the following formula:
(Face Value / Current Price) ^ 1/n - 1
The face value of a bond is the amount you initially paid for it, and "n" represents the number of years left until the bond's maturity date.
If you're not one for mathematics, calculating the yield to maturity may be overwhelming. Well, you're in luck. The Calcopolis bond yield calculator can do all of the calculations for you.
Why Do Bond Yields Rise and Fall?
The main reason behind the fluctuation of bond yields is the changes in the economy's interest rates.
When the interest rate increases, the price of all bonds on the market falls, and vice versa. This means that older bonds rise in value relative to newly issued ones.
This change in bond price has a domino effect that alters the yield. The relationship between these two factors is an inverse one.
As the price of a bond rises, the bond's yield diminishes.
Does Bond Yield Equal Yield to Maturity?
A bond's yield to maturity is similar in concept to its current yield. However, these two yield types aren't the same.
As illustrated above, a bond's current yield is simply a function of the yearly cash flow to the holder divided by the current market price. It tells the holder how much they would make from the bond each year.
In contrast, a bond's yield to maturity is more long-sighted. It accounts for the time value of money. As a result, it gives a more accurate outlook on the profitability of your bond investment.
Are Bonds Good Investments
Governement bonds are generally considered some of the lowest-risk options in terms of investment. They also offer a reasonable return on investment considering their low risk.
However, they're not completely safe. Bond prices and yields can vary a lot with interest rate fluctuations.
With the expected rise in interest rates in the near future, you should explore all your options before investing in bonds.
Keep in mind that as an investor you can invest in corporate bonds, but they could not be considered as save as goverment bonds (source).
Can Bond Yield Be Negative?
When you invest in bonds, you do so to have a positive return on your investment.
Unfortunately, that sometimes doesn't happen. In some cases, a bond's yield can become negative because of changes in its price brought about by fluctuations in interest rates.
When this occurs, a bondholder incurs a loss when the bond matures. This isn't uncommon. There are trillions of dollars worth of negative-yield bonds in circulation.
Alternatives to bonds
If you seek safe investment alternatives to government bonds, you may consider savings accounts and certificates of deposit. The expected rates of return you can calculate other calculators available at Calcopolis saving account calculator and CD calculator.