| Yield calculations on bonds aim to show the return on a gilt or bond as a percentage of either its nominal value or its current price. There are three types of yield calculation that are commonly used: nominal, running/current and redemption yield. Nominal yield is calculated by dividing the annual income on the bond by its nominal or 'par' value. So the nominal yield on a œ100 bond paying 5% interest per year is 5/100 x 100 = 5%. Current or 'running yield' is calculated by dividing the annual income on the bond by its current market price. So if the market price of the œ100 bond dropped to œ95, the current yield on the bond at that time would be 5/95 x 100 = 5.36%. The redemption yield shows what the total return on a bond would be if held to its maturity date. It reflects not only the interest payments a bondholder will receive, but also the gain/loss he will make when it matures.
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