Compare Bond yield scenarios
Change one input, hold everything else identical, and see how much that one input is actually worth. The gap between the scenarios is the whole answer.
What to compare
Everything else below is held identical across the scenarios, so the only thing separating the lines is this one input.
Shared by every scenario
What the issuer repays at maturity. Coupons are a percentage of this, not of what you paid.
Below face value is a discount, above it a premium. This is what decides your yield.
The annual interest the bond pays, as a percentage of face value.
Indian government bonds usually pay twice a year.
Side by side
| Scenario | Years to maturity | Yield to maturity |
|---|---|---|
| Scenario A | 2.5 years | 9.29% |
| Scenario B | 5 years | 8.24% |
| Scenario C | 7.5 years | 7.9% |
Moving years to maturity from 2.5 years to 7.5 years changes yield to maturity by −1.39%. Every other input was identical in both.
Show how each scenario is calculatedHide the working
Scenario A — 2.5 years
Yield to maturity has no closed form. It is found by bisection: the rate is adjusted until the present value of every coupon plus the face value equals the price paid, which is why the last line is stated rather than derived from the line above it.
Coupon for one year
₹1,000 × 7%
= ₹70
Each coupon payment
₹70 ÷ 2
= ₹35
Coupons over 5 payments
₹35 × 5
= ₹175
Gain or loss at redemption
₹1,000 − ₹950
= ₹50
Bought below face value, so redemption adds to the return.
Current yield
₹70 ÷ ₹950
= 7.37%
The coupons alone. It says nothing about the line above.
Yield to maturity
the rate at which the coupons and the face value discount back to the price
= 9.29%
Scenario B — 5 years
Yield to maturity has no closed form. It is found by bisection: the rate is adjusted until the present value of every coupon plus the face value equals the price paid, which is why the last line is stated rather than derived from the line above it.
Coupon for one year
₹1,000 × 7%
= ₹70
Each coupon payment
₹70 ÷ 2
= ₹35
Coupons over 10 payments
₹35 × 10
= ₹350
Gain or loss at redemption
₹1,000 − ₹950
= ₹50
Bought below face value, so redemption adds to the return.
Current yield
₹70 ÷ ₹950
= 7.37%
The coupons alone. It says nothing about the line above.
Yield to maturity
the rate at which the coupons and the face value discount back to the price
= 8.24%
Scenario C — 7.5 years
Yield to maturity has no closed form. It is found by bisection: the rate is adjusted until the present value of every coupon plus the face value equals the price paid, which is why the last line is stated rather than derived from the line above it.
Coupon for one year
₹1,000 × 7%
= ₹70
Each coupon payment
₹70 ÷ 2
= ₹35
Coupons over 15 payments
₹35 × 15
= ₹525
Gain or loss at redemption
₹1,000 − ₹950
= ₹50
Bought below face value, so redemption adds to the return.
Current yield
₹70 ÷ ₹950
= 7.37%
The coupons alone. It says nothing about the line above.
Yield to maturity
the rate at which the coupons and the face value discount back to the price
= 7.9%
Every scenario is computed by the same engine the yield to maturity calculator uses, so the last line of each is the figure in the table above. Intermediate values are shown rounded for reading; the calculation carries full precision throughout.
Over time
Each line is one scenario. Because every other input is identical, the gap between them is the effect of years to maturity alone.
How to read this
- Only one input differs. Every other value is identical across the scenarios, which is what makes the gap between them readable. If each scenario had its own assumed return, the chart would be comparing guesses rather than choices.
- A bigger number is not automatically better. On a loan comparison the larger figure is the worse one, and on any of these the right answer depends on circumstances this page knows nothing about.
- The rate is still an assumption. Comparing scenarios does not make any of them a forecast — it only shows how sensitive the outcome is to the input you changed.
To see the arithmetic behind a single scenario, use the Bond Yield Calculator, which shows the formula and works it through with your numbers.