Bond

A bond is a debt investment instrument that generally provides dived returns for/after a fixed period of time.

Yield of a bond¶

• Coupon yield, also known as the coupon rate, is the annual interest rate established when the bond is issued that does not change during the lifespan of the bond.
• Current yield is the bond’s coupon yield divided by its current market price. If the current market price changes, the current yield will also change.

For example, if you buy a $1,000 bond at par (often described as “trading at 100,” meaning 100 percent of its face value) and receive \(45 in annual interest payments, your coupon yield is 4.5 percent. If the price goes up and the bond subsequently trades at 103 (\)1,030), then the coupon yield will fall to 4.37 percent.

Current yield matters if you plan to sell your bond before maturity. But if you buy a new bond at par and hold it to maturity, your current yield when the bond matures will be the same as the coupon yield.

What is the amortised cost of a bond?