Description
Bond yield refers to the annual rate of return earned on a bond investment, expressed as a percentage of the bond's current market price. It represents the effective interest rate that bondholders receive from holding the bond until maturity and encompasses both the periodic interest payments (coupon payments) and any potential capital gains or losses upon maturity. The calculation of bond yield depends on the type of bond: for fixed-rate bonds, yield is typically calculated using the bond's coupon rate and current market price, while for floating-rate bonds or zero-coupon bonds, the calculation may be more complex. Generally, bond yield is computed by dividing the bond's annual coupon payments by its current market price and is commonly referred to as the yield to maturity (YTM) for bonds held until maturity. Bond yield is a critical metric for investors as it helps assess the attractiveness of bond investments relative to other fixed-income securities and serves as a benchmark for evaluating investment opportunities in the bond market.