Bond Calculator
Calculate bond price, yield to maturity, coupon payments, and total return — understand how interest rates affect bond values.
Example Calculation
Face $1,000 | Coupon 5% | 10 years | Market Rate 6% | Semi-annual
- Semi-annual Coupon: $25.00
- Bond Price: $925.61
- Discount: -$74.39
- Current Yield: 5.40%
- Total Coupon Income: $500.00
- Total Return: $574.39
Frequently Asked Questions
Why does a bond price fall when interest rates rise?
Bond prices and interest rates move in opposite directions. When market rates rise new bonds offer higher yields making existing lower-rate bonds less attractive. To compensate existing bond prices fall until their effective yield matches the new market rate. For example a 5% coupon bond in a 6% market must sell below face value so the buyer receives the equivalent of 6% return. This inverse relationship is fundamental to bond investing.
What is yield to maturity (YTM)?
Yield to maturity is the total return expected on a bond if held until it matures. Unlike the coupon rate which is fixed YTM accounts for both the coupon payments and any capital gain or loss from buying the bond at a premium or discount to face value. YTM is the single most important metric for comparing bonds because it represents the true annual return on investment.
What is the difference between a premium bond and a discount bond?
A premium bond trades above its face value which occurs when the coupon rate exceeds the current market rate. Investors pay more than face value because the higher coupon payments compensate. A discount bond trades below face value which occurs when the coupon rate is below market rates. At maturity all bonds return their face value so discount bonds offer capital appreciation in addition to coupon income.
What is current yield and how does it differ from YTM?
Current yield is annual coupon income divided by current bond price. It ignores the capital gain or loss at maturity. YTM is more comprehensive because it includes both coupon income and the difference between purchase price and face value received at maturity. For a discount bond YTM is higher than current yield because of the built-in capital gain at maturity. For a premium bond YTM is lower.
How do I compare different bonds?
Always compare bonds using yield to maturity rather than coupon rate or current yield. YTM accounts for all cash flows including maturity value. Also compare credit ratings — higher rated bonds (AAA to A) offer lower yields but more safety while lower rated bonds (BB and below) offer higher yields with more risk of default. Duration is another important metric measuring price sensitivity to interest rate changes.