Realized Yield with Reinvestment
Computes the realized compound (horizon) yield of a bond held to maturity, taking into account the actual reinvestment rate of the coupons. Unlike YTM, which assumes coupons earn the bond's own rate, this calculation uses the rate you can actually get when reinvesting — hence the concept of reinvestment risk. It adds the future value of reinvested coupons to the principal and returns the annualized yield (BEY and effective annual). Enter the face, the coupon per period, the reinvestment rate, the periods, the purchase price and the periods per year.
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Realized Yield with Reinvestment
Computes the realized compound (horizon) yield of a bond held to maturity, taking into account the actual reinvestment rate of the coupons. Unlike YTM, which assumes coupons earn the bond's own rate, this calculation uses the rate you can actually get when reinvesting — hence the concept of reinvestment risk. It adds the future value of reinvested coupons to the principal and returns the annualized yield (BEY and effective annual). Enter the face, the coupon per period, the reinvestment rate, the periods, the purchase price and the periods per year.
The hole in the YTM's promise
Yield to maturity carries an assumption almost nobody notices: it assumes you'll reinvest every coupon received at exactly the bond's own rate. In the real world that rarely happens. If rates fall, you reinvest coupons at lower rates, and the return you actually pocket comes in below the promised YTM. That's reinvestment risk.
The realized yield measures the true return, accounting for the rate at which you can actually reinvest the coupons. The calculation accumulates the future value of all reinvested coupons, adds the principal and finds the rate that turns the purchase price into that final amount. When the reinvestment rate is below the YTM, the realized yield is too, and the gap can be significant on long bonds.
Enter the face, the coupon per period, the reinvestment rate per period, the number of periods, the purchase price and the periods per year. The tool returns the annualized yield in two conventions: bond-equivalent (BEY, doubling the semiannual rate) and effective annual (which truly compounds). Use the effective annual to compare with other investments honestly.
Related Tools
I-Spread (Swap Spread)
Computes the I-spread, the difference between a bond's yield and the interpolated swap rate of the same maturity. It measures the bond's credit premium against the swap curve, which many consider a better reference than government bonds for pricing credit. The result comes in basis points. It's a cousin of the G-spread, but uses the swap rather than the government as the comparison base. Enter the bond's yield and the swap rate of the same maturity.
Effective Convexity (Numerical)
Computes the effective convexity of a bond by finite differences, repricing the instrument for an up and a down yield move: (V− + V+ − 2·V0)/(V0·Δy²). Unlike analytical convexity, the effective version works even for bonds with uncertain cash flows, such as those with embedded options, because it only needs the three prices. It complements duration to better estimate the price change in large rate moves. Enter the three prices and the yield change used.
G-Spread (Government Spread)
Computes the G-spread, the difference between a bond's yield and the yield of a government bond of comparable maturity. It's the most direct measure of a bond's credit risk premium: how much extra the market demands to lend to a corporate issuer instead of the treasury. The result comes in basis points, the standard unit of the credit market. Enter the bond's yield and the reference government bond's yield.
The results provided by this tool are for general informational and educational purposes only and do not constitute professional, financial, medical, legal, tax or accounting advice. Always confirm important decisions with a qualified professional and official sources.