function calculateBondReturns() {
// Get input values
var faceValueInput = document.getElementById("faceValue").value;
var couponRateInput = document.getElementById("couponRate").value;
var marketPriceInput = document.getElementById("marketPrice").value;
// Parse values
var valFaceValue = parseFloat(faceValueInput);
var valCouponRate = parseFloat(couponRateInput);
var valMarketPrice = parseFloat(marketPriceInput);
// Validation
if (isNaN(valFaceValue) || valFaceValue <= 0 || isNaN(valCouponRate) || valCouponRate < 0 || isNaN(valMarketPrice) || valMarketPrice <= 0) {
alert("Please enter valid positive numbers for face value, rate, and market price.");
return;
}
// Logic: Calculate Annual Income based on Par Value and Rate
// Income = Face Value * (Rate / 100)
var annualIncome = valFaceValue * (valCouponRate / 100);
// Logic: Calculate Current Yield based on Annual Income and Current Market Price
// Current Yield = (Annual Income / Market Price) * 100
var currentYield = (annualIncome / valMarketPrice) * 100;
// Display results
document.getElementById("annualIncomeResult").innerHTML = "$" + annualIncome.toFixed(2);
document.getElementById("currentYieldResult").innerHTML = currentYield.toFixed(2) + "%";
document.getElementById("bondCalculationResult").style.display = "block";
}
Understanding Bond Fixed Income and Rates
When analyzing fixed-income securities like bonds, understanding the relationship between face value, the nominal rate (often called the coupon rate or sometimes loosely referred to as a "dividend rate" in older terminology), and the actual income generated is crucial. A "100 bond with a 1.34 rate" typically refers to a bond with a par value (face value) of $100 that pays an annual fixed interest rate of 1.34% of that par value.
Calculating Annual Income
The primary benefit of holding a standard bond is the regular interest payments. This income is fixed at the time of issuance and is calculated based on the bond's face value, regardless of what you actually paid for the bond on the secondary market.
The formula for annual income is simply: Face Value × (Annual Rate / 100).
Using the example of a $100 par value bond with a 1.34% rate: $100 × 0.0134 = $1.34. This means the bondholder receives $1.34 per year for every $100 of face value held.
Current Yield vs. Coupon Rate
While the coupon income is fixed in dollar terms, the *yield* you earn depends on the purchase price. Bonds often trade on the secondary market at prices different from their $100 par value.
Trading at Par: If you buy the bond for exactly $100, your Current Yield equals the 1.34% coupon rate.
Trading at a Discount: If you buy the bond for less than $100 (e.g., $95), your Current Yield will be higher than 1.34% because you are paying less to receive the same fixed $1.34 annual income.
Trading at a Premium: If you buy the bond for more than $100 (e.g., $105), your Current Yield will be lower than 1.34% because you paid more for that same fixed income stream.
The calculator above helps determine both the fixed annual dollar return and the actual current yield based on the market price you pay.