Bond finance calculator how to#
Bond finance calculator plus#

There is no formula that can be used to calculate the exact yield to maturity for a bond (except for trivial cases). The YTM takes into account both the interest income and this capital gain over the life of the bond. As we saw in the bond valuation tutorial, bonds selling at a discount to their face value must increase in price as the maturity date approaches. In the case of our example bond, the current yield understates the total expected return for the bond. The YTM is the internal rate of return of the bond, so it measures the expected compound average annual rate of return if the bond is purchased at the current market price and is held to maturity. Unlike the current yield, the yield to maturity (YTM) measures both current income and expected capital gains or losses. Furthermore, the current yield is a useless statistic for zero-coupon bonds. It is not a good measure of return for those looking for capital gains. Therefore, it is a useful return measure primarily for those who are most concerned with earning income from their portfolio. It completely ignores expected price changes (capital gains or losses).

Note that the current yield only takes into account the expected interest payments. For the example bond, the current yield is 8.32%: There is no built-in function to calculate the current yield, so you must use this formula.

The current yield is a measure of the income provided by the bond as a percentage of the current price: (You should be aware that intrinsic value and market price are two different, though related, concepts.) The Current Yield For the sake of simplicity, we will assume that the current market price of the bond is the same as the value. We found that the current value of the bond is $961.63. The bond has a face value of $1,000, a coupon rate of 8% per year paid semiannually, and three years to maturity. In the bond valuation tutorial, we used an example bond that we will use again here. We will discuss each of these in turn below. The expected rate of return on a bond can be described using any (or all) of three measures:

Bond finance calculator plus#

If not, then you should first work through my TI BAII Plus tutorial. If you are comfortable using the TVM keys, then this will be a simple task.

Bond finance calculator how to#

In this section we will see how to calculate the rate of return on a bond investment. We try to find assets that have the best combination of risk and return. One of the key variables in choosing any investment is the expected rate of return. Are you a student? Did you know that Amazon is offering 6 months of Amazon Prime - free two-day shipping, free movies, and other benefits - to students? Click here to learn more