Saving & investing
Bond yield: Definition, Formula and Example
Bond yield relates a bond’s income or promised cash flows to its price; current yield and yield to maturity measure different things.
Scope: General financial concept; examples are hypothetical.
Other names and related labels: Current yield; Yield to maturity (YTM).
How it works
The coupon rate uses face value as its denominator. Current yield divides the annual coupon by today’s price. Yield to maturity is the discount rate matching the price to the scheduled coupons and principal repayment, assuming those payments occur.
Current yield = annual coupon / current price; price = present value of scheduled coupons and redemption
A yield-to-maturity quote needs a coupon frequency and annualization convention. It is not a forecast of the realized holding-period return.
A $50 annual coupon on a bond priced at $950
Assume $1,000 face value and a fixed $50 annual coupon.
- Coupon rate: $50 / $1,000 = 5%.
- Current yield: $50 / $950 ≈ 5.2632%.
Current yield is about 5.2632%; it is not the bond’s yield to maturity.
The issuer pays as scheduled; fees and taxes excluded. Maturity and redemption also affect YTM.
The worked example uses the assumptions above. Related tools may model a different scope; check their descriptions before comparing results.
Coupon, current yield and total return are not interchangeable
A price below face value can add a redemption gain, while default, an early sale, a call or reinvestment at different rates can change realized return. For a standard fixed-rate bond, price and yield move in opposite directions.
Explore with a calculator
- Bond Calculator
Price fixed-coupon bonds or solve for yield under explicit coupon timing.
Sources and checks
Definition and example arithmetic checked . Sources explain the concepts; numerical examples use the assumptions stated above.
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