Useful Tips

Bonds for all occasions

There are various factors that affect how much a bond brings you (annual income or annual percentage): coupon rate, amount paid for the bond, and the estimated duration of this investment. The coupon rate is related to the percentage that you receive from the bond, it is a fixed interest rate and is always paid from the face value or "at parity". If you bought a bond with a premium (i.e. more expensive than parity), the interest rate you get will be calculated at parity; if you bought a bond with a discount, you will also receive interest calculated from parity, but it will be more profitable an investment for you. To calculate the interest on your bond, you need to know a few simple factors and a little math.

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Ways to receive income payments

In the process of numerous settlements around the world, a set of coupon rates has been formed at which income is paid. Today they include:

A rate with a dynamic formation structure is called a floating one. Its size is set in accordance with one of the following factors:

  • The level of profitability of state-owned securities that are placed at auctions,
  • The discount rate from the central bank.


A uniform increase is inherent in this rate because the holder of the bond has several dates for repayment, after which he can make a buyback or postpone this operation until the next cycle. At the same time, its size will increase evenly.

Sometimes there are also varieties whose nominal value is indexed taking into account changes in the CPI.

There are also discount bonds. They exclude coupon payments and are purchased cheaper than the face value. Therefore, their owners claim income from a discount, that is, the difference between the value of the current value at the time of acquisition and the face value.

Bond rate - definition and calculation formula

The purchase price of a security that was formed during the bidding process on the market at the time of issue may deviate from the face value, up or down. In order to compare among themselves two different prices calculate the rate. In the case of a bond, it implies its value at the time of purchase per hundred den. units face value.

At the same time, the bond rate is influenced by many factors, including:

The repayment time at the moment, the risks of interacting with the organization that issued the security, the average amount of the loan interest established in the market, etc.

The formula for calculating the bond rate:

Bonds yield calculation

The acquisition of securities is always evaluated in terms of deposit efficiency, which can be determined using the profitability indicator. It shows the size of the debt in the financing process (transfer of assets to debt) in relation to the costs incurred. It is considered only as a relative indicator, which is presented in the form of a ratio of income per unit of costs incurred.

Calculation and analysis requires taking into account many parameters, depending on what conditions were proposed when issuing a security. In case of repayment closer to the expiration of the period from the moment of issue for measuring profitability, the indicator is divided into the current full and coupon types.

Coupon yield. The issuer undertakes to pay the amount at a certain percentage, which is taken as the norm in relation to a single coupon. You can make payments: annually, after half of this period or quarterly. The current yield with a rate that remains unchanged in any circulation period (fixed) in the form of a ratio: the size of the periodic payment / purchase price.

Using this indicator, you can identify the features of the annual interest that is paid at the time of purchase of a security (i.e., on invested capital).

The formula for calculating the yield of bonds:

Looking at the formula, you can see that the calculation does not take into account fluctuations in the value of the security during its storage, which means that it implies only one source of income.

The result will depend on the current market situation. At the time of purchase of the bond, it remains unchanged due to the similar state of the coupon rate. In this case, the amount will become a constant value, since the coupon rate has a similar value. Conclusion - the size of the current yield will exceed the same indicator for the coupon if the bond was cheaper than the face value, which is easy to notice in practice by analyzing the yield of Russian bonds using the above formula.

However, it goes unnoticed at the exchange rate when comparing the acquisition and redemption prices. Therefore, when comparing the effectiveness of operations with serious differences in the initial income level.

The yield to maturity indicator is a clearly established point for analyzing deposits made during the purchase of securities. It represents the rate in the discount rate. It allows you to balance the amount with the price of the payment stream (per security) upon the fact and its market value.

Despite the fact that this indicator, in fact, demonstrates the internal profitability of the investment, its size will coincide with the real yield of bonds only if:

  • Security is held to maturity.
  • Coupon income paid will be immediately reinvested at the rate

If you preliminarily practice in calculating real profitability, you can study the dependence of yield to maturity on the reinvestment rate. In this case, you can fix a direct relationship between the desired indicator and the rate that is payable.

The indicator of full profitability is named in accordance with the fact that it takes into account all sources from which it is expected to make a profit. In many articles on the topic of profitability, this value is referred to as the rate of the premises. If you calculate as an annual interest rate with a simple or complex structure, you can make a full analysis of the effectiveness of the transaction completed as a result of investing a security.

The accrual of interest at the rate of the premises on the purchase price gives income equivalent to the income actually received on it for the entire period of circulation of this bond until its redemption. The room rate is a calculated amount and does not appear explicitly on the securities market.

The room rate provides the opportunity to accrue interest on the value of the asset in such a way as to obtain the amount of income for the entire period of circulation of the security up to the time of its repayment. Moreover, this value is calculated and has no practical value in the market.

In the process of calculating this indicator, the acquisition price that is set in the market is taken into account, which is why it is influenced by many factors. At the time of acquisition, the future owner expects to receive dividends as a fixed rate, which must be paid accordingly. They are transferred to the owner throughout the entire period of circulation, after which a reimbursement of the nominal value of the bond is also expected.

In this regard, we can distinguish the following regularity:

If the annual payments placed on the deposit or invested in a certain way will bring annual income, then the price of the bond will be equal to the sum: the value of its annuities at the moment + face value set in real time.

The formula for calculating the total yield of a bond has several varieties:

The exchange rate of the bond is calculated depending on the procedure established for interest payments. If it is necessary to make half-year or quarterly calculations, use the following formulas:

Example. On bonds with a nominal value of 10.0 thousand rubles. within 10 years (the term until its maturity) each year, at the end, interest payments in the amount of 1.0 thousand rubles will be paid. (g = 10%), which can be placed in the bank at 11% per annum. Determine the price of bonds at different interest rates.

The market price of the bond according to formula (9.3) will be: