Frequently Asked Questions

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Bond Pricing

What is the relationship between bond yield and bond price?


The yield is the effective interest rate on bonds. The yield will vary inversely with the market price of the Bond.
Yield= (Coupon/ Market Price of Bond) X 100

Interest payouts on bonds are fixed; an increase in bond price means you(or buyer) pay more for the same returns, so effective returns are less. Another way is also true: if bond prices decrease, you (or buyer) are paying less for the same returns; hence effective returns are more. Thus bond yield and bond price are inversely related..