Overview

Main Menu Name: Bonds

Calculates five key figures that are useful in analyzing bond investments:

1. The annual interest paid.
2. The gain or loss on the investment.
3. The original amortization (or accretion).
4. The current yield available on the bond.
5. The approximate yield to maturity.

In this article:

• Background
• Why should I use this calculator?
• Getting Started
• Entering Data
• Results

Background

A bond is the legal evidence of a long-term loan made by the bondholder to the corporation that issued the bond. Typically, the loan must be repaid as of a specified date, the maturity date. Until the bonds are redeemed (paid off by the corporation), interest is paid semi-annually by the corporation to the bondholder at a specified rate. The interest rate payable by the corporation is generally fixed when the bonds are issued and does not change during the life of the bond. The interest rate to be paid can be found on the face of the bond itself, or is shown in newspaper listings such as the Wall Street Journal under bond trading activity.

Bonds are commonly evaluated on the basis of current yield and yield to maturity. Current yield is the return based on the current market price of the bond and is calculated by dividing the annual interest amount by the current market price of the bond. Yield to maturity is the rate of return on a bond held to its maturity date and redeemed by the issuer at its par value. Yield to maturity includes any gain (or loss) if the bond was purchased below (or above) its par value.

Why should I use this calculator?

• To evaluate the attractiveness of a particular bond issue in terms of yield and yield to maturity.
• To compare two or more bonds with respect to their income and yield.
• To compare bonds with other types of securities or other investments such as real estate.

Getting Started

A bond is the legal evidence of a long-term loan made by the bondholder to the corporation that issued the bond. Typically, the loan must be repaid as of a specified date, the maturity date. Until the bonds are redeemed (paid off by the corporation), interest is paid semi-annually by the corporation to the bondholder at a specified rate. The interest rate payable by the corporation is generally fixed when the bonds are issued and does not change during the life of the bond. The interest rate to be paid can be found on the face of the bond itself, or is shown in newspaper listings such as The Wall Street Journal under bond trading activity.

Bonds are commonly evaluated on the basis of current yield and yield to maturity. Current yield is the return based on the current market price of the bond and is calculated by dividing the annual interest amount by the current market price of the bond. Yield to maturity is the rate of return on a bond held to its maturity date and redeemed by the issuer at its par value. Yield to maturity includes any gain (or loss) if the bond was purchased below (or above) its par value.

Entering Data

1. Face Value of Bond:  Enter the face value of a bond at its maturity. This number is almost always $1,000 and it is shown on the bond certificate.
2. Original Purchase Price:  Enter the original price paid for the bond.
3. Current Market Price:  Enter the current fair market value for the bond (typically the market price). The Wall Street Journal is an excellent source for the current market price.
4. Coupon Interest Rate:  Enter the interest rate on the bond. This rate will be shown on the bond as well as on the purchase confirmation.
5. Years to Maturity:  Enter the number of years left until maturity. The maturity date will be stated on the bond or can be found in the Standard & Poor's Bond Guide.

Results

The values entered provide the following results:

• The annual interest paid.
• The gain or loss on the investment.
• The original amortization (or accretion).
• The current yield available on the bond.
• The approximate yield to maturity.