Calculating Bond Yields
Talk of bond yields can be confusing, especially when financial announcements excitedly mention rises in yields straight after delivering gloomy economic news. So, what are bonds? What are yields?
A bond is an IOU issued by organisations such as governments and corporations. At their simplest all bonds have the following in common:
- Face or Par value. This is the loan amount that has to be paid back.
- Maturity. Date on which the loan has to be paid back
- Interest rate or Coupon. The interest is usually paid annually.
Yield is the rate of return on the bond that you have bought, it is also a measure of risk. This risk can take many forms, which themselves can interact to make risk assessment quite difficult. The most obvious risk is the bond issuer going bankrupt, or in the case of a sovereign state, defaulting. Inflation rate rises are also a risk factor in that that they devalue the face value of the bond and also the interest paid on the bond.
The risk associated with a bond is expressed in two ways. Firstly in the change in its yield as the bond is traded and secondly, comparing its yield with that of bonds from similar organisations. The greater the risk, the lower the selling price of the bond which in turn increases the yield.
The calculator below shows how changing the values that make up a bond affect the resulting yield.
Yield = %
This example is intended to demonstrate the impact that currency fluctuations have on commodities that are traded on international markets.
The Commodity Pricing Calculator calculator is still being worked on, some differences in answers are due to minor rounding effects.
|Enter figures in the boxes, the answers will update automatically. Accuracy +- 0.5%|
|Investment||£Startup capital in local currency.||$Startup capital in foreign currency.|
|Exchange Rate||£ to $Exchange rate at the time of purchase.||$ to £Exchange rate at the time of sale.|
|Price per Unit||$Price per unit at the exchange rate when it was purchased.||$Price per unit at the time of sale.|
|Total currency||$Startup capital in foreign currency.||£Sale currency at local exchange rate.|
|Total Units||Number of units bought.||Number of units to sell.|
|ROI Total||£Total return on investment|
|ROI %||Percentage return on investment|
|Unit Price ROIReturn on investment based on changes in unit prices.|
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