Let us take an example of a bond with purchase price of Rs 1000 and 5% coupon. coupon/interest) / Current Market Price * 100Ĭurrent Yield is the more commonly used concept as it is mapped to the bond's current market price and not the purchase amount like YOC. The YOC and the coupon for bonds are the same and are calculated on the bond's initial price, irrespective of the current market price. coupon/interest) / Purchase amount * 100įor example, if an investor purchased a bond 5 years ago for Rs 1000, which gives an annual interest(coupon) of Rs 50, then his YOC = 50/1000100= 5% Yield On Cost (YOC)= Net Cash Flow (i.e.It is related to the market rate of interest determined by the Government at the time of issuance of the bond.īelow are the two yields commonly looked at when evaluating bonds. Bonds have a predefined rate of annual interest declared at the time of issuance, called Coupon.
Since bonds are traded in the secondary market, their purchase price and current market prices differ. Similar to the yield calculation for stocks, yield for bonds can also be calculated if the bond's purchase price or the current market price is provided. Yield or Normal Yield of a Bond= Interest received in a year/ face value (original purchase price) of the bond or current price. Bonds usually trade at a premium (higher than original) or a discounted (lower than original) value. Yield For Bonds:įor bonds and, in extension, debt mutual funds, yield is known as normal yield. The more common practice is to use the current yield as yield for stocks since it is based on the current market price and gives a more realistic picture. Yield on Cost (YOC)= Net Cash Flow / Purchase amount 100įor example, if an investor purchased a share five years ago for Rs 200, which gives a dividend of Rs 15 per share, then his Yield on Cost = 15/200100= 7.5%Ĭurrent Yield = Net Cash Flow / Current Market Price 100įor example, the current stock price of the share mentioned above is Rs 210 with a dividend of Rs 15 per share, then his Current Yield=15/210100 = 7.14% The yield is calculated in 2 ways, based on either the purchase amount or the current market price, whichever is easily available, as well as the dividend (i.e., the net cash flow): It is calculated differently for stocks and bonds. Yield is calculated by dividing the net cash flow received by the amount invested or current value.
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