After starting this blog back in 2016, I realised that I have yet to write a single post on bonds. Let me start the bond ball rolling by explaining bond coupon rate and the two common bond yields used, current yield and yield to maturity.
Coupon Rate and Current Yield
The coupon rate of a bond is always calculated based on its par value. If a $1,000.00 bond’s annual coupon rate is 5%, the bondholder will get $50.00 per year (5% of $1,000.00 = $50.00).
Like any investments, the market value of a bond will fluctuate depending on its demand and supply. Since the coupon rate is fixed, we could use current yield calculations to see if it is higher or lower than the coupon rate.
If the market price of the bond is $950.00, the current yield would be $50.00/$950.00 x 100% ...
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