Bond ladder calculator: income, maturities, and cash flow by year

What would my bond ladder cost, and how much cash does it pay each year?

Bond ladder builder

Build a bond ladder and see its coupon income, maturity spread, and cash flow schedule

Ladder configuration

Sample bonds. Price, coupon and YTM are entered separately and are not checked against each other. A 1-year bond bought at 99.5 with a 4.2% coupon yields about 4.7%, not the 4.5% shown.

Bond 1: 1 year

Principal ($)

Maturity (years)

Coupon rate (%)

Purchase price

YTM you enter (%)

Maturity date

12/31/2027

Bond 2: 2 years

Principal ($)

Maturity (years)

Coupon rate (%)

Purchase price

YTM you enter (%)

Maturity date

12/31/2028

Bond 3: 3 years

Principal ($)

Maturity (years)

Coupon rate (%)

Purchase price

YTM you enter (%)

Maturity date

12/31/2029

Bond 4: 4 years

Principal ($)

Maturity (years)

Coupon rate (%)

Purchase price

YTM you enter (%)

Maturity date

12/31/2030

Bond 5: 5 years

Principal ($)

Maturity (years)

Coupon rate (%)

Purchase price

YTM you enter (%)

Maturity date

12/31/2031

Ladder summary

Bond rungs

$50,000

Total principal

1-5 Years

Maturity range

$2,340

Annual coupon income

Bond ladder strategy guide

How a ladder works:

• Rate exposure: Shorter average duration than one long bond
• Regular income: Predictable cash flows
• Reinvestment: Maturing rungs are reinvested at current rates
• Liquidity: Regular principal returns

Common structure:

• Equal amounts in each rung
• Maturity proceeds reinvested in the longest rung
• Callable corporate bonds can be redeemed early, which ends their coupons

How this calculator works

Each rung is a bond with its own maturity, principal, coupon rate, purchase price (as a percent of face value), and yield to maturity. Add or remove rungs to change the ladder.
Total investment is the sum of principal times purchase price for every rung. A price of 101.5 means you pay $101.50 for every $100 of face value.
Average yield and average maturity are weighted by principal. Annual cash flow is the first-year coupon income across all rungs, calculated on face value.
The yearly schedule adds the principal that matures that year to the coupons still being paid by rungs that have not yet matured.
The five-year return reinvests each year's cash flow at the reinvestment rate you enter until the last rung matures, then compares the ending value with what you paid. It is a cumulative figure for the whole ladder, not an annual rate.

A five-rung ladder with $10,000 in each

Take the lab's starting ladder: five rungs of $10,000 maturing in 1 through 5 years, coupons from 4.2% to 5.1%, purchase prices from 99.5 to 101.5, and a 4.5% reinvestment rate. Together they cost $50,250. The average yield is 4.62% and the average maturity is 3.0 years. In the first year the ladder pays $2,340 in coupons, and the first rung matures, so year-one cash flow is $12,340. By year five only the last rung is left, paying $510 in coupons plus $10,000 in principal. Reinvesting everything at 4.5%, the ladder ends about 25.07% above the $50,250 paid, over the five years.

What this assumes

Every bond is held to maturity and every issuer pays in full. The lab does not model default, calls, or selling early at a different price.
Coupons are counted once a year on face value. Semiannual compounding within a year and accrued interest are not modeled.
Cash flow from each year is reinvested at one flat rate. A real reinvestment rate changes every year.
The total return figure is cumulative over the full ladder, so it should not be compared with a yield, which is annual.
The risk labels (duration, reinvestment, concentration) come from simple cutoffs in the lab, such as an average maturity under 3 years being Low, and are not credit ratings.

Finance Quest is educational. It is not financial advice, and no calculator here knows your full situation.

The mistake: comparing the ladder's total return with a yield

The 25.07% in the example covers five years of coupons and principal. Set against a savings account that quotes 4.5% a year, it looks far larger than it is. The ladder's average yield, 4.62%, is the annual figure to compare. Read the schedule year by year to see how much cash arrives and when.

Common questions

What is a bond ladder?

A bond ladder is a set of bonds that mature in different years. As each rung matures, the principal comes back, and it can be spent or reinvested in a new bond at the far end of the ladder.

Why do the purchase prices differ from 100?

A purchase price above 100 means a premium over face value, and below 100 means a discount. In the lab's example the cost is $50,250 for $50,000 of face value, and the premium is part of the cost. The lab returns only the face value at maturity.

What does the reinvestment rate change?

It sets the rate used to grow each year's cash flow until the last rung matures. A higher rate raises the ending value and the cumulative return. It does not change the coupons or the yearly schedule.

Does the lab pick bonds for me?

No. You enter the coupons, prices, and yields for each rung. The lab adds them up and does not recommend or look up specific bonds.

Learn the idea behind it

The lesson for this lab is in Chapter 14, Bonds & Fixed Income. Read the lesson

Related labs

How this calculator works

Each rung is a bond with its own maturity, principal, coupon rate, purchase price (as a percent of face value), and yield to maturity. Add or remove rungs to change the ladder.
Total investment is the sum of principal times purchase price for every rung. A price of 101.5 means you pay $101.50 for every $100 of face value.
Average yield and average maturity are weighted by principal. Annual cash flow is the first-year coupon income across all rungs, calculated on face value.
The yearly schedule adds the principal that matures that year to the coupons still being paid by rungs that have not yet matured.
The five-year return reinvests each year's cash flow at the reinvestment rate you enter until the last rung matures, then compares the ending value with what you paid. It is a cumulative figure for the whole ladder, not an annual rate.

A five-rung ladder with $10,000 in each

What this assumes

Every bond is held to maturity and every issuer pays in full. The lab does not model default, calls, or selling early at a different price.
Coupons are counted once a year on face value. Semiannual compounding within a year and accrued interest are not modeled.
Cash flow from each year is reinvested at one flat rate. A real reinvestment rate changes every year.
The total return figure is cumulative over the full ladder, so it should not be compared with a yield, which is annual.
The risk labels (duration, reinvestment, concentration) come from simple cutoffs in the lab, such as an average maturity under 3 years being Low, and are not credit ratings.

Finance Quest is educational. It is not financial advice, and no calculator here knows your full situation.

Common questions

What is a bond ladder?

A bond ladder is a set of bonds that mature in different years. As each rung matures, the principal comes back, and it can be spent or reinvested in a new bond at the far end of the ladder.

Why do the purchase prices differ from 100?

What does the reinvestment rate change?

Does the lab pick bonds for me?

No. You enter the coupons, prices, and yields for each rung. The lab adds them up and does not recommend or look up specific bonds.