How to Use Our Bond Calculator
To value a bond and understand its yield, you need a few key details. Our calculator can solve for either the Bond Price or the Market Rate (Yield) if you know the other values.
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Par Value (Face Value): This is the amount the bond will be worth at maturity. It’s the full amount the issuer promises to pay back to the bondholder when the bond “matures” or comes due. For most individual bonds, this is typically $1,000.
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Coupon Rate (%): This is the fixed annual interest rate the bond issuer promises to pay. It is calculated as a percentage of the Par Value. A bond with a $1,000 par value and a 5% coupon rate will pay $50 in interest each year.
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Years to Maturity: The remaining number of years until the bond’s par value is paid back.
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Market Rate / Yield to Maturity (%): This is the current rate of return that investors demand for buying a similar bond on the open market. This rate fluctuates based on changes in the economy and central bank interest rates. If you know the price you paid for a bond, you can input it and the calculator will solve for this yield.
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Current Bond Price ($) (Optional): If you are trying to find the bond’s yield, enter the price you are paying for it here. If you are trying to find the fair price, leave this blank and fill in the Market Rate instead.
Understanding Your Results
The calculator provides two essential pieces of information for any bond investor: the price and the yield.
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Bond’s Current Price: This is the fair market value of the bond today. It represents the present value of all future interest payments (coupons) plus the present value of the par value paid at maturity, all discounted by the current market rate.
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Current Yield: This is a simple measure of the return on your investment based on the bond’s annual coupon payment and its current market price. The formula is: Current Yield = Annual Coupon Payment / Current Bond Price.
Why Bond Prices Change: The Inverse Relationship
The most important concept in bond investing is that when market interest rates go up, the prices of existing bonds go down. The reverse is also true. This happens because no one would buy your existing bond with its lower fixed coupon rate if they could buy a brand new bond that pays more. To make your bond attractive, you must sell it at a lower price (a discount).
Let’s look at a bond with a $1,000 Par Value, a 5% Coupon Rate, and 10 years to maturity:
Frequently Asked Questions
What’s the difference between Coupon Rate, Current Yield, and YTM?
These are three different ways of looking at a bond’s return, and it’s crucial to know the difference.
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Coupon Rate: The fixed interest rate set when the bond is issued. It never changes. It determines the dollar amount of the annual interest payment ($1,000 Par Value x 5% Coupon Rate = $50/year).
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Current Yield: A simple snapshot of return. It’s the annual interest payment divided by the bond’s current market price. If you buy the 5% coupon bond for $950, your current yield is $50 / $950 = 5.26%.
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Yield to Maturity (YTM): The most comprehensive measure. It is the bond’s total annualized return if you hold it until it matures. YTM accounts for all future coupon payments, the par value you get at the end, and the difference between the price you paid and the par value. Our calculator uses “Market Rate” and “YTM” interchangeably.
What is interest rate risk?
Interest rate risk is the single biggest risk for investors in high-quality bonds (like U.S. Treasuries). As explained above, if interest rates in the economy rise, the market value of your existing, lower-rate bond will fall. The longer the bond’s maturity, the greater the interest rate risk. A 30-year bond’s price will fall much more dramatically than a 2-year bond’s price in response to a 1% rise in interest rates.
As of July 2025, with interest rates having risen significantly in recent years, investors are highly aware of this risk. If you believe rates will fall, locking in a long-term bond at today’s rates could be profitable. If you believe rates will continue to rise, shorter-term bonds are less risky.
What’s the difference between government and corporate bonds?
The main difference is the issuer and the associated level of risk.
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Government Bonds (e.g., U.S. Treasury Bonds): Issued by a country’s government. U.S. Treasury bonds are considered one of the safest investments in the world because they are backed by the “full faith and credit” of the U.S. government. They have very low default risk.
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Corporate Bonds: Issued by companies to raise capital. They carry more risk than government bonds because the company could potentially go bankrupt and be unable to repay its debt. This additional risk is called “credit risk” or “default risk.”
Because of this extra risk, corporate bonds almost always offer a higher yield than government bonds of the same maturity.
How do credit ratings affect a bond?
Credit rating agencies (like Moody’s and Standard & Poor’s) assess a bond issuer’s financial health and assign it a rating (e.g., AAA, AA, A, BBB, BB). This rating directly impacts the bond’s price and yield.
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High Credit Rating (e.g., AAA, AA): Indicates very low risk of default. These bonds are safer, so they pay a lower interest rate/yield.
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Low Credit Rating (e.g., BB or lower): These are known as “high-yield” or “junk” bonds. They have a higher risk of default, so they must offer investors a much higher interest rate/yield to compensate for that risk.
If a company’s credit rating is downgraded, the perceived risk increases, and the price of its existing bonds will immediately fall.
Are bonds a good investment?
Bonds can be an excellent component of a diversified investment portfolio. They are typically used to generate a steady income stream and to provide stability that offsets the volatility of stocks. When stocks are performing poorly, high-quality bonds often hold their value or even increase in price, acting as a valuable counterbalance. They are generally best for investors with a lower risk tolerance or those who are nearing or in retirement and need predictable income.
Next Steps in Your Financial Journey
After exploring bond returns, you may want to compare them to other fixed-income options. Use our CD Calculator to see the guaranteed returns offered by bank Certificates of Deposit. To understand how different types of returns fit into a long-term growth strategy, experiment with our Compound Interest Calculator.
