# How to Calculate the Rate of Return on a Bond

When bonds are issued, they are assigned a par value and a stated interest rate. However, bonds are traded like stocks, which means that the price you pay to buy a bond may not equal the par value.

Regardless of the price you pay, the interest payment remains fixed based on the par value on the stated **interest rate**. To accurately calculate your return, you need to calculate the rate of return based on your purchase price.

- Steps to Calculate the Rate of Return on a Bond
- 1. Check the price you paid for the bond.
- 2. Consult your bond’s financial information to determine the par value and the stated interest rate.
- 3. Multiply the par value by the stated interest rate to find how much you will be paid in interest.
- 4. Divide the result from step 3 by the price you paid for the bond.
- 5. Multiply the result from step 4 by 100 to convert from a decimal to a percentage for the rate of return on the bond.

### Steps to Calculate the Rate of Return on a Bond

#### 1. Check the price you paid for the bond.

#### 2. Consult your bond’s financial information to determine the par value and the stated interest rate.

#### 3. Multiply the par value by the stated interest rate to find how much you will be paid in interest.

For example, if the par value of the bond is $250 and the stated interest rate equals 7.2 percent, you would get $18.

#### 4. Divide the result from step 3 by the price you paid for the bond.

For example, if you paid $230 for the bond, you would divide $18 by $250 and get 0.072.

#### 5. Multiply the result from step 4 by 100 to convert from a decimal to a percentage for the rate of return on the bond.

Continuing the example, you would multiply 100 by 0.072 to find the rate of return to be 7.2 percent.

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