What is Bond Yield Formula?
Bond yield formula is the formula used to calculate the return on bonds invested and is based on the purchase price and interest amount prescribed. The interest amount prescribed is also known as the coupon rate. The coupon rate is nothing but the amount mentioned for certain payment which is mandatory.
Bond yield is of two types
Bond Yield Calculation Formula
It is the formula used to find out for the anticipated annual rate return of the bond. Let us understand the bond yield equation under the current yield in detail.
 This formula basically depends upon annual coupon payment and bond price.
 When bond price increases yield decreases,
 When bond price decreases yield increases.
Examples of Bond Yield Calculation Formula (with Excel Template)
Let’s see some simple to advanced practical examples of the bond yield equation to understand it better.
Example #1
If a bond has a face value of $1300. And the interest promised to pay (coupon rated) is 6%. Find the bond yield if the bond price is $1600.
 Face Value = $1300
 Coupon Rate = 6%
 Bond Price = $1600
Solution:
Here we have to understand that this calculation completely depends on annual coupon and bond price. It completely ignores the time value of money, frequency of payment and amount value at the time of maturity.
Step 1: Calculation of the coupon payment annual payment
Annual Coupon Payment = Face Value * Coupon Rate
 =$1300*6%
 Annual Coupon Payment =$78
Step 2: Calculation of bond yield
Bond Yield Formula = Annual Coupon Payment/Bond Price
 =$78/$1600
Bond Yield will be –
 =0.04875 we have considered in percentages by multiplying with 100’s
 =0.048*100
 Bond Yield =4.875%
Here we have to identify that if the bond price increase bond yield decrease
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Example #2
If a bond has a face value of $1000 and its price s $970 now and the coupon rate is 5% find the bond yield.
 Face Value =$1000
 Coupon Rate=5%
 Bond Price = $970
Solution:
Here we have to understand that this calculation completely depends on annual coupon and bond price. It completely ignores the time value of money, frequency of payment and amount value at the time of maturity.
Step 1: Calculation of the coupon payment Annual Payment
 =$1000*5%
 Annual Payment =$50
Step 2: Calculation of bond yield
 =$50/$970
Bond Yield will be –
 =0.052*100
 Bond Yield =5.2%
Hence it is clear that if bond price decrease bond yield increase.
Example #3
If a bond has a face value of $1800 and its price s $870 now and the coupon rate is 9% Find the bond yield.
 Face Value =$1800
 Coupon Rate=9%
 Bond Price =$870
Solution:
Here we have to understand that this calculation completely depends on annual coupon and bond price. It completely ignores the time value of money, frequency of payment and amount value at the time of maturity.
Step 1: Calculation of the coupon payment Annual Payment
 =$1800*9%
 Annual Payment = $162
Step 2: Calculation of bond yield
 =$162/$870
Bond Yield will be –
 =0.186*100
 Bond Yield =18.6%
Hence it is clear that if bond price decrease bond yield increase.
Example #4
If a bond has a face value of $1800.And the interest promised to pay (coupon rated) is 7%. Find the bond yield if the bond price is $2000.
 Face Value = $1800
 Coupon Rate = 7%
 Bond Price = $2000
Solution:
Here we have to understand that this calculation completely depends on annual coupon and bond price. It completely ignores the time value of money, frequency of payment and amount value at the time of maturity
Step 1: Calculation of the coupon payment Annual Payment
 =$1800*7%
 Annual Payment =$126
Step 2: Calculation of bond yield
 =$126/$2000
Bond Yield will be –
 =0.063 we have considered in percentages by multiplying with 100’s
 =0.063*100
 Bond Yield = 6.3%
Here we have to identify that if the bond price increase bond yield decrease.
Bond Yield Calculator
You can use these bond yield formula calculator
Annual Coupon Payment  
Bond Price  
Bond Yield Formula  
Bond Yield Formula = 


Relevance and Use
 It is easy for an investor to draw a comparison between different bonds.
 The estimation of returns becomes easy.
 It helps in understanding the market fluctuations.
 Bond yield equation is a simple calculation technique when compared to the yield to maturity.
 It is very simple and clear.
 And moreover, it ignores the time value of money and matured value.
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