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What is a bond worth, and what will it pay if I hold it?
5.00%
This week: compare this yield with the rate on a savings account you could use for the same years.
Written by Elizabeth Stein
The annual return you earn if you buy a bond at today's market price and hold it to maturity, counting every coupon and the face value you get back. When the price equals face value, yield to maturity equals the coupon rate.
New bonds pay the higher rate, so an existing bond with a lower coupon has to sell for less to offer a competitive yield. The lab shows how much the price moves for a 1 percentage point change in yield.
Current yield is the annual coupon income divided by the price. It ignores any gain or loss when the bond matures. Yield to maturity includes that gain or loss, so the two differ whenever the price is not at face value.