Bargains -- How to Spot the Difference. Skip to main content. Compare Popular Online Brokers. The modified current yield formula takes into account the discount or premium at which you buy the bond, and is calculated as:.
Bonds selling for less than par value are said to be selling at a discount. Let us take an example of bonds issued by company XYZ Ltd that pays coupons annually.
Know coupon rate and yield formula
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Yield to maturity and coupon rate are two critical aspects that should be understood when considering investing in bonds. If two bonds are held constant in respect to their risk, a higher return would be preferable.
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To see why, consider this simple example. The offers that appear in this table are from partnerships from which Investopedia receives compensation. How it works Example: Raise the result by the number of terms in 1 year, then subtract 1.