Which Bond Yield Should I Use?
Are you asking about coupons, maturity, an early call or a sale? Each measure answers a different question.
Try it and see the difference
One bond: choose the question first
Face 1,000, price 1,080, 5% coupon, ten-year maturity and semiannual payments; a year-three call repays 103 per 100.
50 / 1,000 = 5%, while 50 / 1,080 = 4.63%. These two measures look only at annual coupons, not how the purchase premium is recovered.
| Measure and question | Value |
|---|---|
| Coupon rateAnnual contractual coupon / face | 5.00% |
| Current yieldAnnual coupon / today's price | 4.63% |
| YTMOriginal ten-year maturity; repayment 1,000 | 4.02% |
| YTCYear-three call; repayment 1,030 | 3.15% |
| YTWLower yield across these maturity/call scenarios | 3.15% |
Exit yield 6% · reinvestment 3% · no assumed early call
See the return components
- Coupon income
- 50.00
- Reinvestment income
- 0.375
- Price gain/loss
- -148.77
Why does this happen?
Coupon rate divides by face value; current yield divides by today's price. YTM and YTC also include final repayment, purchase premium or discount and timing. Selling after one year requires separate sale-price and reinvestment assumptions: YTM alone cannot tell you that year's return.
Total return needs additional holding assumptions
The interaction's one-year scenario uses a 6% exit yield and 3% coupon reinvestment rate, separate from maturity or call scenarios. Holding-period return cannot replace YTM without checking its horizon and assumptions.
Show formal definition and formula
Coupon rate and current yield compare annual coupons with different denominators. YTM and YTC use complete payments to different endpoints; YTW takes the lowest yield among defined scenarios. Holding-period return separately combines coupons, reinvestment and price gain or loss.
Same coupon, different denominator
YTM / YTC: yield implied by payments
Lower yield among the defined scenarios
- P / F
- Purchase price / face value
- C / c
- Coupon per period / annual coupon rate
- R
- Final repayment: face at maturity, contractual amount at call
- N
- Whole coupon periods through maturity or call
- m / y
- Coupon frequency / nominal annual yield to solve
- k
- Number of valid call scenarios
Fixed scheduled payments, valued on a coupon date with decimal rates. Default, taxes, fees and calls not defined in the example are excluded.
A common misconception
YTM, YTW and current yield are not guaranteed returns. YTW compares only the specified maturity and call scenarios, excluding default, liquidity, reinvestment and early-sale risks.