Yield-to-maturity on a semiannual coupon bond




Yet as interest rates in the broader bond market change, bond prices can rise or fall dramatically from their par value, and that makes calculating yields trickier. To get an initial approximation of a semi-annual bond yield, one simple method is simply to take the coupon rate on the bond to calculate the semi-annual bond payment and then divide it by the current price of the bond to get a yield. Coupon rates are quoted in terms of annual interest payments, so you'll need to divide the rate by two in order to figure out the semi-annual payment.

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The problem with using the simple method to calculate semi-annual bond yields is that it ignores the impact of gains or losses between now and when the bond matures. One way to take gain or loss into account is to divide it up across the remaining periods and then add or subtract it from the interest payment. Strictly speaking, dividing the gain into equal payments doesn't match up with the way that compound returns work, so if you run the situation through a financial calculator, you'll get a slightly different answer.


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In the case above, the actual semi-annual bond yield is 2. Nevertheless, you can see that the quick equal-payment method gets you fairly close to the real answer.

Finally, keep one thing in mind: Regardless of how they're stated, though, knowing the bond yield can help you compare different bonds to find the best choices for your financial needs. For many investment options, both stocks and bond funds, you'll need a brokerage account.


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Yield to Maturity

We'd love to hear your questions, thoughts, and opinions on the Knowledge Center in general or this page in particular. Your input will help us help the world invest, better! Thanks -- and Fool on! Skip to main content Helping the world invest better since Hi, Fool! Premium Services. Stock Advisor Flagship service. Using the prior example, the estimated yield to maturity is Other examples may have a larger difference.

A higher yield to maturity will have a lower present value or purchase price of a bond. Therefore, the yield to maturity will be a little higher than Through trial and error, the yield to maturity would be Excel is helpful for the trial and error method by setting the spreadsheet so that all that is required to determine the present value is adjusting a fixed cell that contains the rate.

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