Bond yield calculator

What do the two yields mean?#

Investor.gov defines current yield as the ratio of the interest payable on a bond to its actual market price, stated as a percentage^[1]. The SEC's bulletin on corporate bonds describes yield to maturity as the annual return if the bond is held to maturity, taking into account when you bought it and what you paid^[2].

How is the result calculated?#

1. Yearly coupon = face value × coupon rate.
2. Current yield = yearly coupon ÷ price.
3. Yield to maturity = the rate that makes the present value of all remaining coupons plus the face value equal to the price. The calculator finds it by trial (bisection), assuming every payment is made on time.

What does this calculator assume?#

• Every coupon and the face value are paid in full and on time — there is no default. FINRA notes that yield to maturity assumes coupon and principal payments are made on time^[4]. Credit risk is covered in credit ratings explained.
• Coupons are reinvested. You do not have to reinvest them, but FINRA notes that yield-to-maturity computations generally make that assumption^[4].
• No call features, taxes or trading costs.
• The price you enter is treated as the full amount you pay. The calculator ignores accrued interest — interest earned on a security but not yet paid^[5].

What mistakes do beginners make?#

1. Comparing a coupon rate with a yield

   The coupon rate is fixed at issue; yields depend on today's price. Compare yields with yields.

2. Forgetting credit risk

   Non-investment-grade (high-yield) bonds generally offer higher interest rates to compensate investors for greater risk^[2]. The calculator assumes every payment arrives.