Bond Yield Definition

What Is a Bond Yield?

A bond’s yield is a measure of its return.

The yield is calculated using the bond’s current market price (not its principal value) and its coupon rate.

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How Are Bond Yields Calculated?

A bond’s yield calculation is best understood with an example.

A bond purchased at its face value of $1000 with a coupon rate of 5% returns $50 annually, so its yield is 5%.

If the bondholder later sells the bond to another investor at a premium for $1100, the bond will still return $50 annually, but its yield will be lower.

$50 is 4.5% of $1100, so the yield to the new investor is only 4.5%.

If the same bond were to be sold for $900, the yield would be 5.5%.

Therefore, since the maturity date and coupon rate remain constant, the yield only changes based on the market price for a given bond.

To learn more about Bonds, make sure to check out our article by clicking the link!

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Bond Yields FAQs

A bond’s yield is a measure of its real rate of return, factoring in the number of compounding periods for the bond.
A bond's yield is calculated using the bond’s current market price (not its principal value) and its coupon rate.
A bond's yield is important to investors who are looking for the best possible rate of return on their money, regardless of the bond's current value.
Since the maturity date and coupon rate remain constant, the yield only changes based on the market price for a given bond.
A bond purchased at its face value of $1000 with a coupon rate of 5% returns $50 annually, so its yield is 5%.
True Tamplin, BSc, CEPF®

About the Author
True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University, where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website, view his author profile on Amazon, his interview on CBS, or check out his speaker profile on the CFA Institute website.

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