How to Calculate Bond Yield
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The bond yield is important because know how much money you will make on the bond in terms of percentage which is computed on an annual rate of return. To calculate ‘bond yield’ may sound technically difficult but the best assurance that you can get now is that there are available software solutions and Internet applications that can perform the calculation for you in just a click if you do not trust your mathematical ability that much. So what would this technology be for if it is not put into use? Here are the steps on how to calculate bond yield fast and easy.
Step 1
Visit the page of Moneychimp’s Bond Yield-to-Maturity and once you are there, scroll down on the page and click on the pop-up calculator icon.
Step 2
You would then be required to key in the current price of the bond as it is listed in the bond market.
Step 3
You would then be required to key in the par value of the bond which is that amount which the issuer refunds you when the bond reaches its maturity date but is usually pegged at $1000.
Step 4
Key in the coupon rate of the bond which is the interest per annum or the stated interest of the bond which is expressed in compounded interest. The coupon rate is also called the nominal rate or the fixed interest rate of the bond. It is a fixed rate because it is only paid to par or to the amount of bonds that you own. The coupon rate is the rate at which the issuer of the bond pays to par value.
Step 5
Key in the maturity date or the number of years after which the bond matures and upon such date the issuer makes the payment. If there are decimal points, do the estimate to the nearest year. Usually, the bonds are bought in short term basis which mature in three years.
One last touch, place your mouse cursor on ‘calculate’ button to calculate bond yield.
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