Is it the interest it gives you or is it aprreciation?
Thanks
2007-06-08 06:40:33 · 7 answers · asked by George 3 in Business & Finance ➔ Investing
Bond yield is basically the percentage you get when you divide a bond's regular annual interest payment by the market price or cost of the bond.
For example, a bond with a face value of $1,000 (the amount payable at maturity) rarely sells for the face value. If the stated interest rate is 7%, the bond will pay you $70 a year. But if the market interest rate is higher (or the rating of the issuer is low), the bond might sell for only $950, thus giving a yield of 7.37% ($70 divided by $950).
Bonds tend to increase in value as market interest rates drop and decrease in value as market interest rate rise. The reason fo rthis is that as market rates rise, the present value of the bond interest payments and promised principal repayment become worth less. The reverse is true as market interest rates decline.
2007-06-08 08:40:43 · answer #1 · answered by BAL 5 · 1⤊ 0⤋
The yield is simply the return you get over the life of the bond. For example, if you buy a 10 year bond that pays 8%, you get the following payouts:
$80 interest every year for 10 years
$1000 when the bond matures
Even though this is called an 8% bond, the price you pay determines the yield. If you pay par ($1000) then the bond yields 8%. If you pay less then $1000, say $980, then the bond yields 8.3%. If you pay 1080, the bond only yields 6.87%.
2007-06-08 15:07:11 · answer #2 · answered by Gretch 3 · 1⤊ 0⤋
Both. The interest plus the appreciation or minus the depreciation.
The yield also factors in the how long you have held the bond. For example, Bond A pays 10% and has increased in price from $1000 to $1100 over the past year. Bond B pays 10% and has increased in price from $1000 to $1100 over the past 5 years. Bond A would have a higher yield.
2007-06-08 14:07:02 · answer #3 · answered by KhrisB 3 · 1⤊ 1⤋
The yield is the net annual rate of interest paid by the bond. It is calculated by dividing the "coupon rate" of the bond (i.e., the rate of interest assigned to the bond when it is issued) by the current market price of the bond. If the market price is above 100 (actually $1000, and known as the face value of the bond) the bond is said to be selling at a premium, and its yield will be at a lower rate than what was assigned when the bond was issued; conversely, if the market price is below 100 (see above) the bond is said to be selling at a discount, and its yield will be at a higher rate than what was assigned when the bond was issued.
2007-06-08 15:08:18 · answer #4 · answered by jerrold 3 · 0⤊ 0⤋
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2014-08-03 14:18:39 · answer #5 · answered by Cari 2 · 0⤊ 0⤋
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2007-06-09 19:55:50 · answer #6 · answered by Anonymous · 1⤊ 0⤋
Current, redemption or nominal ..
http://www.finance-glossary.com/terms/bond-yield.htm?ginPtrCode=00000&id=166&PopupMode=no
2007-06-08 13:43:42 · answer #7 · answered by pepper 7 · 0⤊ 1⤋