How to use this calculator
- Enter the bond's Face value (the amount repaid at maturity) and the Price paid.
- Add the Coupon rate and the Years to maturity.
- Choose Coupons per year to match how the bond pays.
- Read the Yield to maturity, then the current yield, annual coupon income and the gain or loss at maturity.
Coupon, current yield and yield to maturity
A bond pays a fixed coupon, a percentage of face value, and returns the face value at maturity. If you pay less or more than face value, your actual return differs from the coupon rate.
Price = Σ C/(1 + y)ᵗ + F/(1 + y)ⁿ current yield = annual coupons / price- C = coupon payment per period (face value × coupon rate ÷ payments per year)
- F = face value repaid at maturity
- n = number of coupon payments to maturity
- y = yield per period; the quoted YTM is y × payments per year
Current yield divides one year of coupons by the price you pay. It is simple but ignores the gain or loss when the bond matures. Yield to maturity (YTM) includes both, and is the annual rate that makes the present value of every coupon and the final repayment equal to your price.
Example: a bond bought at a discount
A $1,000 bond with a 5% coupon, 8 years to maturity and semi-annual payments costs $950. Coupons are $50 a year, $400 in total. The current yield is 5.26%, but the yield to maturity is 5.79% because you also gain $50 when it is repaid at face value.
Pay $1,050 instead and the YTM falls to 4.26%, with a $50 loss at maturity. At exactly $1,000 the YTM equals the coupon, 5%. With annual instead of semi-annual coupons the YTM at $950 is 5.80%, a small difference from compounding frequency.
Price and yield move in opposite directions
When market rates rise, existing bonds with lower coupons fall in price until their yield matches new bonds. When rates fall, prices rise. Bonds with long maturities react more strongly. If you hold to maturity and the issuer pays, price swings along the way do not change the YTM you locked in at purchase.
How to use the result
Compare bonds by YTM, not by coupon. Check the issuer's credit quality: a higher yield usually means higher risk of default, and callable bonds can be repaid early. For comparing a bond with a deposit, use the APY calculator or the CD calculator. To see what the yield is worth after inflation, use the real rate of return calculator.
Common mistakes
- Comparing coupon rates instead of yields.
- Forgetting accrued interest, which you pay the seller when buying between coupon dates.
- Ignoring taxes; interest from some bonds is taxed differently.
- Assuming a bond fund has a fixed maturity value like a single bond.
Assumptions and limits
The tool assumes the issuer pays every coupon on time and repays the face value, that you hold to maturity, and that coupons are reinvested at the YTM. It uses a whole number of coupon periods, ignores accrued interest, call features, fees and taxes. Check quoted yields with your broker.
Frequently asked questions
What is yield to maturity?
The total annual return if you buy the bond at today's price, receive all coupons and hold until it is repaid at face value.
Why is my yield higher than the coupon rate?
You paid less than face value, so besides the coupons you gain the difference at maturity. Paying more than face value does the opposite.
What is the difference between current yield and YTM?
Current yield is the annual coupon divided by price. YTM also counts the gain or loss at maturity and the timing of all payments.
Does the coupon frequency matter?
Slightly. More frequent coupons are received sooner and can be reinvested, which makes the effective annual yield a little higher.