How this calculator works
The annual coupon divided by face value gives the nominal coupon rate. Reinvesting each equal coupon at that same periodic rate gives an effective annual yield. This is a par-value reinvestment illustration. It does not use a bond market price, remaining maturity, default probability or redemption premium, so it is not yield to maturity.
Formula
Coupon rate c = annual coupon/face value. Effective annual yield = (1+c/m)^m - 1, where m is coupon payments per year.
Worked example
A $1,000 face value with $60 annual coupons paid semi-annually has a 6% coupon rate and 6.09% effective annual yield. A 10% coupon paid quarterly produces 10.381289% effective yield.
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Frequently asked questions
Does this calculate yield to maturity?
No. Yield to maturity discounts market-price cash flows through redemption. This tool only compounds the coupon rate.
What reinvestment rate is assumed?
Each coupon is reinvested at the same rate per coupon period. A different available rate changes the result.
Does payment frequency change the annual coupon amount?
Not when the coupon rate and face value are fixed. It changes how the annual amount is split and reinvested.