When you purchase a bond, you are essentially extending a loan to the government or a corporation. In compensation for this load, you receive annual coupon payments that reflect the interest described as a bond yield. Unlike other investment vehicles, these payments do not remain in a bond account to accrue additional interest; they are paid out every year. When the bond matures, you will receive the face value of the bond, which is the original purchase price, and nothing more. However, over the years, you will receive the annual coupon payments, so you can calculate the total amount received for the bond after it matures.
1. Multiply the bond's coupon yield, or interest rate, by the bond's face value. As an example, if you had a $1,000 bond that offers a coupon yield of 5 percent, you would multiply $1,000 times 0.05 to derive a coupon payment of $50, which you receive each year during the life of the bond.
2. Multiply the coupon payment by the number of years of the bond. In the example, if the bond matures after 10 years, you would multiply 10 times $50 to total $500 in coupon payments.
3. Add the bond's face value, because you receive that back when the bond matures. In the example, you would receive $1,000 at maturity, in addition to the $500 coupon payments, which brings your total up to $1,500 for the life of the bond.
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