What is Bond Yield
Bond Yield
There is a certain amount of capital that you shall invest in a bond. The return on that invested capital is the bond yield. There are many ways of defining it. Let's study some of the fundamental bond yield concepts in brief.
Coupon Yield
The yearly interest rate fixed when issuing the bond is its coupon yield. The amount of income on a bond and the coupon rate is the same as the coupon yield. The coupon yield is represented in the per cent form. For example, assume you bought a bond for $2,000 and later, you receive $25 as your yearly interest payments. Then the coupon yield on it will be 5%. This value remains unchanged during the entire lifespan of the bond.
Current Yield
To evaluate the current yield, we must divide the coupon yield of the bond by its market price.
Current Yield= Coupon Yield/Market Price (of the bond)
About Bond Yield
Suppose you are an investor who is willing to buy a bond. Therefore, to buy it, you must lend some money to the bond's issuer. Now, after purchasing a bond, the bond issuer will give you a certain amount of interest (as decided before) during the entire lifespan of the bond. Moreover, the issuer will also have to pay the face value of these bonds to you (the investors) upon the maturity of the bonds.
To calculate the coupon rate or the bond yield, you must divide the payment on the coupon by the face value of the bond concerned.
Coupon Rate= Annual payment on the coupon/Face value of the bond.
For Example, The annual payment on any coupon is $2000, and the face value of that coupon is 200 dollars. Then, the coupon rate will be $10.
Note: If the bond is purchased at some discount or a value more than its face value, it will alter the yield on the bond.
What is Bond Yield, and how it is calculated?
According to the Bond Yield definition, it is the amount you return on the capital invested on a particular bond.
The bond yield is calculated by using the following formula:
Bond Yield= Coupon Amount/ Price
What is the relationship between bond yield and bond price?
The bond yield and bond prices are inversely proportional. The bond yield will eventually drop by increasing the bond price.
Which type of bond is better: High yield bonds or low yield bonds?
The answer to the question depends upon the condition and goals of the investors. For example, if an investor wishes to have a low risk and wants to hedge a mixed portfolio, then the investors must invest in low-yield bonds. On the other hand, if the investor wishes to have a higher risk for a more significant profit, they must opt for high-yield bonds.
What do the bond yields and bond prices tell us about?
Bond yields and bond prices tell us about the whole economy and inflation.
Disclaimer: This content is authored by an external agency. The views expressed here are that of the respective authors/ entities and do not represent the views of Economic Times (ET). ET does not guarantee, vouch for or endorse any of its contents nor is responsible for them in any manner whatsoever. Please take all steps necessary to ascertain that any information and content provided is correct, updated and verified. ET hereby disclaims any and all warranties, express or implied, relating to the report and any content therein.
There is a certain amount of capital that you shall invest in a bond. The return on that invested capital is the bond yield. There are many ways of defining it. Let's study some of the fundamental bond yield concepts in brief.
Coupon Yield
The yearly interest rate fixed when issuing the bond is its coupon yield. The amount of income on a bond and the coupon rate is the same as the coupon yield. The coupon yield is represented in the per cent form. For example, assume you bought a bond for $2,000 and later, you receive $25 as your yearly interest payments. Then the coupon yield on it will be 5%. This value remains unchanged during the entire lifespan of the bond.
Current Yield
To evaluate the current yield, we must divide the coupon yield of the bond by its market price.
Current Yield= Coupon Yield/Market Price (of the bond)
About Bond Yield
Suppose you are an investor who is willing to buy a bond. Therefore, to buy it, you must lend some money to the bond's issuer. Now, after purchasing a bond, the bond issuer will give you a certain amount of interest (as decided before) during the entire lifespan of the bond. Moreover, the issuer will also have to pay the face value of these bonds to you (the investors) upon the maturity of the bonds.
To calculate the coupon rate or the bond yield, you must divide the payment on the coupon by the face value of the bond concerned.
Coupon Rate= Annual payment on the coupon/Face value of the bond.
For Example, The annual payment on any coupon is $2000, and the face value of that coupon is 200 dollars. Then, the coupon rate will be $10.
Note: If the bond is purchased at some discount or a value more than its face value, it will alter the yield on the bond.
What is Bond Yield, and how it is calculated?
According to the Bond Yield definition, it is the amount you return on the capital invested on a particular bond.
The bond yield is calculated by using the following formula:
Bond Yield= Coupon Amount/ Price
What is the relationship between bond yield and bond price?
The bond yield and bond prices are inversely proportional. The bond yield will eventually drop by increasing the bond price.
Which type of bond is better: High yield bonds or low yield bonds?
The answer to the question depends upon the condition and goals of the investors. For example, if an investor wishes to have a low risk and wants to hedge a mixed portfolio, then the investors must invest in low-yield bonds. On the other hand, if the investor wishes to have a higher risk for a more significant profit, they must opt for high-yield bonds.
What do the bond yields and bond prices tell us about?
Bond yields and bond prices tell us about the whole economy and inflation.
Disclaimer: This content is authored by an external agency. The views expressed here are that of the respective authors/ entities and do not represent the views of Economic Times (ET). ET does not guarantee, vouch for or endorse any of its contents nor is responsible for them in any manner whatsoever. Please take all steps necessary to ascertain that any information and content provided is correct, updated and verified. ET hereby disclaims any and all warranties, express or implied, relating to the report and any content therein.
