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Finance Formulas / July 19, 2018 / Heaven Estes

You can use the bond yield formula to determine the return you’ll realize by holding a bond to maturity. The required yield, conversely, is the return a bond must offer to make it worthwhile to investors, and it’s usually the same yield offered by other plain vanilla bonds in the market with similar credit quality and maturity. Once you’ve decided on the required yield, you can figure out the yield.

Bond valuation is a technique for determining the theoretical fair value of a particular bond. Bond valuation includes calculating the present value of the bond's future interest payments, also known as its cash flow, and the bond's value upon maturity, also known as its face value or par value. Because a bond's par value and interest payments are fixed, an investor uses bond valuation to determine what rate of return is required for a bond investment to be worthwhile.

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