BNET Business Dictionary
Business Definition for: Bond Yield
- the annual return on a bond (the rate of interest) expressed as a percentage of the current market price of the bond. Bonds can tie up investors' money for periods of up to 30 years, so knowing their yield is a critical investment consideration.
Example: Bond yield is calculated by multiplying the face value of the bond by its stated annual rate of interest, expressed as a decimal. For example, buying a new ten-year $1,000 bond that pays 6% interest will produce an annual yield amount of $60:1,000 x 0.060 = 60The $60 will be paid as $30 every six months. At the end of ten years, the purchaser will have earned $600, and will also be repaid the original $1,000. Because the bond was purchased when it was first issued, the 6% is also called the yield to maturity.
This basic formula is complicated by other factors. First is the "time-value of money" theory: money paid in the future is worth less than money paid today. A more detailed computation of total bond yield requires the calculation of the present value of the interest earned each year. Second, changing interest rates have an impact on bond trading and, ultimately, on yield. Changes in interest rates cannot affect the interest paid by bonds already issued, but they do affect the prices of new bonds.
Additional Resources
- Bond Yield Calculator
- The Bond Yield Calculator for Excel or OpenOffice Calc enables the automatic generation of scheduled bond payments and the calculation of resulting yield to maturity. The model is equipped to handle 'odd' first time periods and is ideal to speed up bond payment and yield calculations. ...
- Tools & templates 2008-01-01
- Bond Yield Calculator
- This bond yield calculator can help you figure out the current bond yield as well as the bond yield to maturity. The calculator requires several inputs including the current bond price, par value, coupon rate and years until maturity.
- Tools & templates 2008-01-01
- What Might Be My Yield-To-Call?
- This calculator calculates your rate of return, before and after taxes, for a callable bond. A callable bond is a bond that can be redeemed by the issuing company, municipality or government. Rates of return are calculated in two ways: yield to maturity and yield-to-call. Some of the reasons a...
- Tools & templates 2008-01-01
- What Is My Yield To Maturity?
- Yield to maturity is the rate of return you earn on a bond if you hold the bond to maturity. Yield to maturity assumes that the interest coupons you receive on the bond can be reinvested at the same rate. Yields are shown on a before- and after-tax basis.
- Tools & templates 2008-01-01
- Municipal Bond Tax Equivalent Yield
- This tool will estimate The Tax-Equivalent Yield TEY for a municipal bond. Income generated from municipal bond coupon payments are not subject to federal income tax. In addition, if the bond was issued in your state of residence, you can also avoid state income taxes. Use this tool to determine...
- Tools & templates 2008-01-01
- Has The Time Passed For Municipal Bond Funds?
- The question this article tries to address is do municipal bond funds still have a place in today’s portfolios? After closely examining yield and bond fund expenses, along with other factors such as diversification, it is concluded that many investors would do better with individual issues. A well-run bond fund...
- White papers 2000-08-01
- High Yield Or Junk Bonds
- A high yield, or junk, bond is a bond issued by a company that is considered to be a higher credit risk. The credit rating of a high yield bond is considered speculative grade or below investment grade. This means that the chance of default with high yield bonds is...
- White papers
- Sponsored Report: High Yield - Seeking global exposure in high yield.
- Global high yield FT Mandate: Following the credit rating downgrade, Ford and General Motors now accounts for 7 per cent of the Merrill Lynch Global High Yield Index. Does this concentration represent a risk or a golden investment opportunity for high yield...
- Research articles 2006-03-01
- What Is My Current Yield On Coupon Income Received?
- This calculator shows the current yield of a bond. Yields are provided before and after taxes. Current yield equals the bond coupon rate divided by the bond's current price.
- Tools & templates 2008-01-01
- How low can they go? (United States government bond yields)
- US 30-year term Treasury bond prices are falling slightly after a long increase. The effect of inflation on the bond market is discussed in relation to T-bond price forecasts. The Federal Reserve may raise interest rates to control inflation.AMERICA'S Treasury bonds may be at a turning point. The price of...
- Research articles 1993-10-30
- Ten-year bond yield best in years.
- Byline: Jacob Saulwick May 27, 2007 (The Sydney Morning Herald - ABIX via COMTEX) -- The 10-year government bond yield in Australia has risen beyond 6, the highest level since mid-2004. The trend is associated with investors moving out of bond markets into the...
- Research articles 2007-05-27
- Bond fund expenses: your government funds are working for you. (The Markets).
- Bond fund expenses Your government funds are working for you HIGH-YIELD MUNI LOWEST COST ...
- Research articles 2003-01-27
- Should I Buy A Tax-Exempt Or Taxable Bond?
- This calculator calculates rates of return, before and after taxes, for a taxable and tax-exempt bond. Rates of return are shown for two scenarios: holding the bond to maturity and selling before maturity. The calculator also uses a bar graph to show the composition of returns, in dollars, for capital...
- Tools & templates 2008-01-01
- What Price Should I Pay?
- This calculator shows the current price market value of a bond given the market interest rate that you enter. It also calculates the price at which you would sell the bond in order to achieve your desired yield to maturity. Yield to maturity is the rate of return you expect...
- Tools & templates 2008-01-01
- Bond Expert: Tuesday Wrap
- John Jansen submits: Prices of Treasury coupon securities are registering broad based losses in a day dominated by the fortunes, misfortunes and future prospects of AIG. There were many stories and comments about that company but a late in the day story that the Fed was reconsidering their position...
- External links 2008-09-16
- Seligman High-Yield Bond Series to Pay Capital Gain Distribution
- NEW YORK--BUSINESS WIRE--June 16, 1998--Directors of Seligman High-Yield Bond Series yesterday declared a capital gain distribution of $0.021, consisting of $0.021 from net long term gain realized on investment transactions of Seligman High-Yield Bond Series.The gain will be payable June 17, 1998 to shareholders of record of Capital Stock at...
- Research articles 1998-06-16
- Is Now the Time for High Yield
- The 4th Quarter of 2002 was one of the strongest performing periods since 1991 for the Lehman Brothers US Corporate High Yield Bond Index High Yield as high yield spreads tightened over 175 basis points generating a total return of 6.7%. With yields at 11.5%, off an October month-end high...
- White papers 2003-01-01
- Bond-fund yields aren't created equal.
- May 20, 2003 (The Asian Wall Street Journal - ABIX via COMTEX) The US Securities & Exchange Commission SEC has required that bond funds issue standardised yield figures since 1998. The SEC mandated the requirement in order to assist investors in comparing one fund with...
- Research articles 2003-05-20
- Can Structural Models Price Default Risk? New Evidence From Bond and Credit Derivative Markets
- Using a set of structural models, this paper evaluates bond yield spreads and the price of default protection for a sample of US corporations. Theory predicts that if credit risk alone explains these two quantities, their magnitudes should be similar. The findings concur with previous results that bond yield spreads...
- White papers 2005-01-27
- Bond Expert: Friday Outlook
- John Jansen submits: Prices of Treasury coupon securities have posted, on balance, small declines in overseas trading. The yield on the benchmark 2 year note is unchanged at 2.51 percent. The yield on other benchmark issues has climbed by 1 basis point. Thus, the yield on the 5 year...
- External links 2008-08-01
