About the Bond Yield Calculator
A bond has several numbers that all get called "the yield", and they disagree with each other. Which one you look at decides whether the bond looks good.
Coupon rate is fixed at issue. It tells you the cash, not the return.
Current yield is coupon divided by price. It is what most quotes show, and it is incomplete.
Yield to maturity is the rate that discounts every coupon and the face value back to what you paid. It is the only one that accounts for getting par back at the end.
This bond yield calculator works out all three, and then the figure almost nobody quotes: what the bond returns if you spend the coupons rather than reinvesting them.
How to Use the Bond Yield Calculator
Enter the price you paid, the face value it repays at maturity, the coupon rate and the years remaining.
Set how often the coupon is paid — most bonds pay twice a year, and the frequency changes the answer.
Step-by-Step Example
A £1,000 bond with a 5% coupon, bought at £900, ten years to maturity.
Coupon rate: 5.00% (fixed at issue)
Current yield: 5.56% (50 ÷ 900)
Yield to maturity: 6.37% (includes the 100 pull to par)Three numbers, one bond. The £100 you gain as the bond climbs back to face value is real return, and only the yield to maturity counts it.
The Three Yields Always Order Themselves the Same Way
This is the most useful thing to know about bond quotes, and it is a strict rule rather than a tendency:
bought at a discount: coupon rate < current yield < YTM
bought at a premium: coupon rate > current yield > YTM
bought at par: all three are equalSo the moment you see the coupon rate and the current yield, you know the direction of the error in the quote.
A premium bond quoting a healthy current yield is losing capital every year, and the current yield does not show it. A bond bought at £1,100 that redeems at £1,000 hands back £100 less than you paid. A 5% coupon on it quotes a 4.55% current yield, which still looks respectable — but the yield to maturity is 3.79%. Some of that generous-looking coupon is your own capital coming back.
The Assumption Nobody Mentions
Yield to maturity is the better number, but it is not the whole truth either.
YTM assumes every coupon is reinvested at the YTM itself, until maturity.
That is a strong assumption. It requires that rates never move, and that you never spend a penny of the income. For a retiree living off the coupons it is simply false.
| 30-year bond, 8% coupon, bought at par | Return |
|---|---|
| Yield to maturity (coupons reinvested at 8%) | 8.00% |
| Coupons spent as received | 4.12% |
Roughly half. On a long bond with a large coupon, most of the quoted return is interest on interest that you have to actually earn.
The calculator reports that no-reinvestment figure as a floor under the headline yield. The true answer sits somewhere between the two, depending on what rates you can actually get when each coupon lands.
Note that the gap shrinks with term and with coupon size. On a zero-coupon bond it vanishes entirely — there is nothing to reinvest, so the yield to maturity is exactly what you realise.
Why Prices and Yields Move Opposite Ways
The coupon is fixed. That is the whole explanation.
If new bonds start being issued at 7% and you hold one paying 5%, nobody will buy yours at the old price. The only way it can compete is for the price to fall until the total return — coupon plus the larger pull to par — matches what is available elsewhere.
The relationship is strictly inverse, with no exceptions. The calculator verifies it in its own tests by sweeping every price from 400 to 2,000 and confirming the yield falls at each step.
How YTM Is Actually Calculated
By solving, not by formula.
There is no closed-form expression for yield to maturity. The price equation cannot be rearranged to isolate the rate, so it has to be found numerically.
This calculator uses bisection: price falls monotonically as yield rises, so repeatedly halving the interval converges on the answer to any tolerance you like. It is slower than Newton-Raphson and it cannot diverge, which matters on long-dated bonds where Newton's method sometimes wanders off.
Understanding Your Result
Yield to maturity is the headline, and the figure to compare between bonds.
All three yields shows the coupon rate, current yield and YTM together, so the ordering is visible.
Discount or premium says where you bought relative to face value and how much capital gain or loss is built in.
What you receive is the actual cash: each coupon, the total over the term, and the face value at the end.
Worth knowing flags a flattering current yield or the reinvestment gap.
When Should You Use This Calculator?
Comparing two bonds. Only the yield to maturity compares like with like.
Checking a quoted yield. If a quote shows current yield on a premium bond, it is overstating the return.
Planning income. If you intend to spend the coupons, the no-reinvestment figure is your number, not the YTM.
Understanding a price move. Work out what yield the new price implies.
Common Mistakes
Treating the coupon rate as the return. It is the cash, fixed at issue, and tells you nothing about what you paid.
Comparing bonds on current yield. It ignores the pull to par entirely.
Trusting a premium bond's high coupon. Part of it is your capital returning.
Assuming YTM is what you will get. It assumes full reinvestment at the same rate.
Ignoring coupon frequency. Twice-yearly and annual coupons at the same rate are not the same return.
Forgetting credit risk. Every figure here assumes the issuer pays. A high yield often means the market doubts that.
This calculator ignores taxes, accrued interest between coupon dates, call provisions and the possibility of default. Every figure is an estimate for comparison, not investment advice.