Bond yieldYield calculations on bonds aim to show the return on a gilt or bond as a percentage of either its nominal value or its current price. There are three types of yield calculation that are commonly used:Nominal Yield (also known as 'flat yield')This is calculated by dividing the annual income on the bond by its nomina or 'par' value. So the nominal yield on a £100 bond which pays 5% interest per year is 5/100 x 100 = 5%.Current or 'Running Yield'This is calculated by dividing the annual income on the bond by its current market price. So if the market price of the £100 bond dropped to £95, the current yield on the bond at that time would be 5/95 x 100 = 5.36%. Note that as the market price of a bond drops, its yield goes up.Redemption Yield'The Redemption Yield shows what the total return on a bond would be if held to its maturity date. It reflects not only the interest payments a bondholder will receive, but also the gain/loss he will make when it matures. The income element is the same 'current yield' calculation performed above. The gain/loss element is calculated by taking the difference between the current market price and the nominal value of the bond (e.g. in our example 100 - 95 = 5), dividing it by the number of years til maturity (assume 5 years for simplicity, so 5/5 = 1) and then dividing that figure by the current price of the bond (1/95 x 100 = 1.05%) The yield to redemption is the sum of the current yield (5.36%) and the capital yield (1.05%) = 6.41%.
Ratio of income from an investment to the total cost of the investment over a given period of time.
Positive yield curvePositive yield curve
When long-term debt long-term debt are higher than short-term debt rates (because of the increased long-term debt involved with long-term debt long-term debt).
Tax equivalent yieldTax equivalent yield
The pre-tax yield required from a taxable bond in order to equal the tax-free yield of a municipal bond.
Current yieldCurrent yield
For bonds or notes, the coupon rate divided by the market price of the bond.
Yield to warrant callYield to warrant call
Applies mainly to convertible securities. Effective yield of usable or synthetic convertible bonds determined against the first date at which the warrants can be called.
Further Suggestionsbond interest yield
Yield to warrant expiration
Expected dividend yield
Holding Period Yield (HPY)
Negative yield curve
Yield spread strategies
Constant yield method
Yield to average life
Coupon equivalent yield
Liquid yield option note (LYON)
Annual percentage yield (APY)