WHAT IS YIELD TO BOND?
October 9, 2007: Yield is a return you get from buying a bond. Yield to bond can be calculated in two ways. They are: 1. Current yield 2. Yield to maturity 1. Current yield The formula to calculate current yield is very simple. Current yield = coupon amount / price of the bond. Example, a bond price is $ 1000 and the interest amount or coupon amount is $ 100 per annum, the current yield would be 10 percent. If the price of the bond goes down to $ 800, the current yield would be 12.50 percent. On the other hand, if the price of bond goes up to $ 1200, the current yield becomes 8.33 percent. So it indicates that price of the bond and yield has an inverse relationship. Generally yield, coupon rate and interest rate are same in meaning. 2. Yield to maturity (YTM) The calculation of bond yield using yield to maturity is a complicated one but very meaningful than current yield method. Whenever, bond investor talk about yield, they refer to yield to maturity concept. For example, take a bond
