Why a $1,000 Bond Almost Never Sells for $1,000
Elena bought a 10-year bond at face value, $1,000, paying a 3% coupon, or $30 a year. Two years later, new bonds of the same quality pay 5%. She needs to sell. The buyer asks a simple question: why would I take your 30 a year when I can get50 from a fresh bond? The answer is that Elena's bond no longer sells for $1,000. To match the new 5% market yield, its price drops to roughly $880. She locked in a 3% coupon and the market quietly handed her a $120 paper loss the day rates climbed.
Bond prices and interest rates move in opposite directions, and this calculator shows you exactly how far. A bond is a fixed stream of payments: periodic coupons plus the face value returned at maturity. Its fair price today is the present value of all those future payments, discounted at the current market yield. When market yields rise above the bond's coupon rate, the bond must sell at a discount below face value to stay competitive. When yields fall below the coupon, the bond sells at a premium above face value.
The relationship between coupon rate and market yield tells you instantly whether you are looking at a premium or a discount. Coupon higher than yield means a premium price above $1,000. Coupon lower than yield means a discount below $1,000. Coupon equal to yield means the bond trades right at par, $1,000. A 4% bond in a 6% world trades at a discount; that same 4% bond in a 2% world trades at a premium. The coupon is frozen at issue, so price is the only lever left to balance the equation.
Current yield reframes the bond around what you actually pay. If you buy that discounted bond for $880 and collect $30 a year, your current yield is about 3.4%, higher than the 3% stated coupon, because you paid less than face value. Current yield is a quick snapshot, but it ignores the gain you capture when the bond matures at $1,000. Yield to maturity, the full internal rate of return, tells the complete story and is what serious bond investors compare.
This calculator computes price, premium or discount, current yield, and modified duration from your coupon rate, market yield, term, and face value. In one screen you go from a coupon and a market rate to a fair price you can check against any quote, plus a duration number that tells you how sharply that price will react to the next move in rates.