# Bond Yield

### Written byTrue Tamplin, BSc, CEPF® | Reviewed by Editorial Team

Updated on December 19, 2022

## What Is a Bond Yield?

A bond's yield is a measure of its return. The yield is calculated using the bond's current market price (not its principal value) and its coupon rate.

## How Are Bond Yields Calculated?

A bond's yield calculation is best understood with an example.

A bond purchased at its face value of \$1000 with a coupon rate of 5% returns \$50 annually, so its yield is 5%. If the bondholder later sells the bond to another investor at a premium for \$1100, the bond will still return \$50 annually, but its yield will be lower. \$50 is 4.5% of \$1100, so the yield to the new investor is only 4.5%.

If the same bond were to be sold for \$900, the yield would be 5.5%. Therefore, since the maturity date and coupon rate remain constant, the yield only changes based on the market price for a given bond.

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## Bond Yields FAQs

### What is a Bond's yield?

A bond’s yield is a measure of its real rate of return, factoring in the number of compounding periods for the bond.

### How is a Bond's yield calculated?

A bond's yield is calculated using the bond’s current market price (not its principal value) and its coupon rate.

### Why is a Bond's yield important?

A bond's yield is important to investors who are looking for the best possible rate of return on their money, regardless of the bond's current value.

### How does a Bond yield change?

Since the maturity date and coupon rate remain constant, the yield only changes based on the market price for a given bond.

### What's an example of a calculating Bond yield?

A bond purchased at its face value of \$1000 with a coupon rate of 5% returns \$50 annually, so its yield is 5%.