Bond Yield Definition
What Is a Bond Yield?
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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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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®), author of The Handy Financial Ratios Guide, a member of the Society for Advancing Business Editing and Writing, 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.