Frequently asked questions
Why does a bond trade at a premium or discount?
A bond trades at a premium (above face value) when its coupon rate exceeds the current market rate, because its cash flows are more attractive than new issues. It trades at a discount when the coupon is below the market rate. At maturity, the bond converges to face value regardless.
What is the difference between current yield and yield to maturity?
Current yield is simply the annual coupon divided by the current price. It ignores the capital gain or loss at maturity. Yield to maturity (YTM) is the total annualized return if held to maturity, including coupon reinvestment and the price gain/loss at par. YTM is the more complete measure.
Does this calculator account for accrued interest?
No. This calculates the 'clean price' assuming you buy at the start of a coupon period. In real markets, you'd also pay accrued interest (the 'dirty price') proportional to how far into the coupon period the trade occurs.
How do interest rate changes affect bond prices?
Bond prices move inversely to interest rates. When market rates rise, existing bonds with lower coupons become less attractive, so their price falls. Longer-duration bonds are more sensitive to rate changes. A 1% rate increase on a 10-year bond typically causes a ~7–8% price drop.
What does coupon frequency affect?
More frequent coupons (semi-annual vs annual) mean you receive cash sooner and can reinvest it. For the same coupon rate and YTM, semi-annual payment bonds have a slightly higher price than annual bonds. Most corporate and government bonds pay semi-annually.
Can I use this for zero-coupon bonds?
Yes. Set the coupon rate to 0%. The calculator will price the bond as the present value of the face value alone, discounted at the market rate. Zero-coupon bonds always trade at a discount and are more sensitive to rate changes than coupon bonds of the same maturity.