Calculate bond current yield, yield to maturity (YTM), and yield to call (YTC). Comprehensive bond yield analysis.
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This bond trades at a discount (below face value).
Since you buy below par, you get a capital gain at maturity: $50. YTM (5.66%) > Current Yield (5.26%) > Coupon Rate (5%).
| Face Value | $1,000 |
|---|---|
| Current Price | $950 |
| Coupon Rate | 5% |
| Annual Coupon Payment | $50 |
| Coupon Per Period (2x/yr) | $25 |
| Current Yield | 5.26% |
| Yield to Maturity (YTM) | 5.66% |
| Yield to Call (YTC) | 6.53% |
| Total Coupons to Maturity | $500 |
| Capital Gain/Loss | $50 |
| Total Return ($) | $550 |
| Total Return (%) | 57.9% |
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Current yield tells you what percentage of the bond's price you receive in annual income:
Current Yield = Annual Coupon Payment ÷ Current Market Price
Example: A bond with $50 annual coupon trading at $950:
Current Yield = $50 ÷ $950 = 5.26%
Limitation: Current yield ignores capital gains. If you bought at $950 and the bond matures at $1,000, you also gain $50 — current yield doesn't account for this.
YTM is the internal rate of return (IRR) of the bond, considering:
• All coupon payments until maturity
• The capital gain or loss (difference between price and par value)
• The time value of money (discounting future cash flows)
The YTM formula is solved iteratively (there's no closed-form solution):
Price = Σ [Coupon / (1+YTM/2)^t] + [Face Value / (1+YTM/2)^n]
For semiannual coupons, where t = each payment period and n = total periods.
For callable bonds, YTC calculates your return if the issuer calls the bond at the first call date:
Same formula as YTM, but replace maturity date with call date and face value with call price (often par + call premium).
If YTC < YTM, the bond is likely to be called (it's cheaper for the issuer to refinance). If YTC > YTM, the bond probably won't be called.
YTM is the total return expected on a bond if held until it matures. It accounts for current price, face value, coupon payments, and time to maturity.
The coupon rate is fixed when the bond is issued. YTM changes with the bond's market price. If you buy below par, YTM > coupon rate. Above par, YTM < coupon rate.
Current yield only considers annual income vs price. YTM also accounts for capital gains/losses at maturity and the time value of money. YTM is more comprehensive.
Most U.S. bonds pay semiannually (twice per year). Some bonds pay annually, quarterly, or monthly. Zero-coupon bonds pay no coupons — all return comes at maturity.
Bond prices and interest rates move inversely. When interest rates rise, existing bond prices fall because their fixed coupons become less attractive relative to new bonds. A 1% rate increase drops a 10-year bond's price by approximately 8-9%. This is called interest rate risk.
Duration measures a bond's price sensitivity to interest rate changes, expressed in years. A bond with 7-year duration loses approximately 7% of its value for each 1% interest rate increase. Longer duration means more risk but typically higher yields to compensate.
US Treasury bonds are considered risk-free for principal repayment. Corporate bonds carry default risk rated by agencies like Moody's and S&P. Investment-grade bonds (BBB or higher) default less than 1% historically. All bonds face inflation risk if yields don't keep pace with rising prices.
Treasury bonds are backed by the US government with the lowest risk and yields. Municipal bonds fund state and local projects with tax-exempt interest. Corporate bonds offer higher yields but carry credit risk. Choose based on your tax bracket and risk tolerance.
Current Yield = Annual Coupon ÷ Current Price
YTM: Price = Σ[C/(1+r)^t] + FV/(1+r)^n (solved iteratively)
YTC: Same formula, using call date and call price instead of maturity and face value
Every formula on this page traces to a federal agency, central bank, or peer-reviewed institution. We cite the rule-makers, not secondhand blogs.
Found an error in a formula or source? Report it →
Result: YTM = 4.25% (equals coupon when bought at par). Annual income $425, total return ~$4,250.
Per TreasuryDirect weekly auctions, 10-year Treasury yields ranged 3.9–4.5% through 2024–2025. Treasuries are state-tax-exempt — at 9% state tax, 4.25% Treasury = 4.65% equivalent after tax vs a CD at the same nominal yield.
Result: YTM ~6.35% · You get $500/yr in coupons + $800 capital gain at maturity
Discount pricing signals either rising rates since issuance OR credit risk concerns. Check Moody's/S&P ratings. Investment-grade (BBB+) historical default rate <1% (Moody's Annual Default Study).
Result: Tax-equivalent yield = 3.5% / (1 − 0.463) = 6.52%
For top-bracket CA residents, a 3.5% muni equals a 6.52% taxable corporate bond. Per IRS Section 103 munis are federally tax-exempt; CA munis also CA-exempt. The higher your bracket, the better munis get.
Current yield = annual coupon / current price. YTM also bakes in the capital gain or loss you'll realize at maturity. Always compare bonds on YTM.
Impact: A bond trading at $92 with 4% coupon shows 4.35% current yield but 5.2% YTM — a meaningful difference in true return.
Duration approximates price sensitivity: a 7-year duration bond drops ~7% per 1% rate rise. Short-duration funds (<3yr) limit this risk.
Impact: Long-duration bond holders lost 13–18% in 2022 as the Fed hiked rates aggressively. Short-duration holders lost <3%.
Put corporate/Treasury bonds in Traditional IRA/401(k) for tax deferral. Munis belong in taxable accounts for tax-free income.
Impact: A 5% corporate bond in taxable at 32% + 9% state = 2.95% after-tax. Same bond in Traditional IRA = full 5% (deferred until withdrawal).
Calculations are for educational purposes only. Consult a qualified financial advisor for personalized advice.