Bond yield

Bond yield refers to the rate of return that an investor can expect from a bond after a given period of time. When an investor tries to calculate the bond yield, it is necessary to remember that the price at the time that the bond was purchased is no longer relevant. What the investor must pay attention to is the updated data on the bond’s current price.

When calculating for the bond yield, the investor must also assume that the bond will be kept for at least a year. To understand the status of the bond yield, it is also necessary to have information on the bond’s current annual coupon. This is necessary because one way of computing for a bond yield is to divide the annual coupon associated with the bond by the price of the bond itself. This computation also assumes that the said price will stay the same.

Capital loss can occur in cases when interest rates fluctuate and bond prices decrease. On the other hand, if bond prices happen to increase, then the investor receives capital gains from the investment.

For investors, it is important to know how a bond yield works. They can take note of the different factors that may come into play in determining a bond issue’s future worth. By doing so, investors will be able to minimize risk and make sound decisions on whether they should purchase certain bonds and hold on to them for a period of at least one year.

If the information available shows that the bond has good potential for profit for at least a year, then it is a good sign for the investor to buy. On the other hand, if the bond is not very promising, then the investor can avoid probable loss by considering other investment options.

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