Three yields, one bond
A bond quoted at "5%" tells you almost nothing about what you will earn, because 5% is the coupon rate on face value and nobody pays face value. This calculator gives the current yield — the coupon against the price actually paid — and the sections below place it between the coupon rate and the yield to maturity, which is the figure that matters.
The formula
Worked example: $1,000 face, 5% coupon, bought at $950
- Annual coupon: $50
- Current yield: 50 / 950 = 5.26%
- Coupon rate: 5.00% — yield to maturity over 10 years: 5.66%
Buying below face raises the yield above the coupon; buying above face lowers it. The yield to maturity is higher still because it also counts the $50 gain from being repaid $1,000 at the end.
Price and yield move in opposite directions
| Price paid | Current yield |
|---|---|
| $900 | 5.56% |
| $950 | 5.26% |
| $1,000 | 5.00% |
| $1,050 | 4.76% |
| $1,100 | 4.55% |
The coupon is fixed at issue; the price moves with market rates. When central banks raise rates, existing bonds fall in price until their yield matches the new ones — which is how a "safe" bond fund lost 13% in 2022.
Which yield to use
Current yield answers "what cash does this pay me each year for what I paid" and is the right figure for income planning. Yield to maturity answers "what total return do I get if I hold to the end" and is the right figure for comparing bonds against each other or against a savings rate. For a bond bought at a discount the YTM is always higher; at a premium, always lower.
Neither is the return you will actually get if you sell before maturity. That depends on the price on the day.
After tax
Coupon income is taxed as ordinary income in most jurisdictions, which for a US investor in the 24% band turns the 5.26% into about 4.0%. Municipal bonds are the exception, and the tax-equivalent yield calculator compares them fairly.
What this calculator leaves out
Accrued interest paid to the seller, which raises the true cost; call features that let the issuer repay early when rates fall; and default risk, which is why a 9% corporate yield is not simply better than a 4% government one.
Related calculators
- Yield to maturity calculator — the full return to redemption
- Bond price calculator — the price implied by a target yield
- Tax-equivalent yield — comparing taxable and tax-free bonds