For those of you who have chosen to invest in various types of Bonds, it's best to understand how to calculate this investment tool. As an investor, of course you want the value of your assets to increase from the Bonds you own.
Before getting to the method of calculation, here are some terms that you may be familiar with. Such as Bond coupons, yield to maturity, current yield, accrued interest, capital gains and others which will be mentioned a lot in this review.
Formulas for Calculating Bonds’ Potential Profits and Interest
Maybe you already know that the advantage of Bonds as investment instruments is that they have a varied investment period with stable interest rates and relatively small risk.
However, this type of investment has many aspects that need to be calculated to know the return value. The following is the general calculation of Bonds issued by the government.
- Coupon Value
Also known as the interest rate, this Bond coupon is the rate of interest received by investors on a regular basis. The period varies, can be once a month, once every three months to once every six months. Depends on initial agreement.
If you have ORI Bonds with a coupon value paid each month, the yield calculation can be seen below.
Example:
You have IDR 200 million and buy 200 units of ORI Bonds on the primary market with an interest rate or coupon of 4.9% per year.
Investment value = IDR 200,000,000
Coupon/year = IDR 200,000,000 x 4.9% = IDR 9,800,000
Coupon/month = IDR 9,800,000 : 12 = IDR 816,666
Tax/month = IDR 816,666 x 10% = IDR 81,666
Net coupons per month = IDR 735,000
- Capital Gains
If you sell your Bonds at a selling price that is higher than the purchase price, this is where you get capital gains. The calculation is as follows.
Still using the example above with an initial investment value of IDR 200 million/200 units. Let’s say you can sell your Bonds at 102%. How much profit do you get?
Capital Gain = IDR 200,000,000 x (102-100)% = IDR 4,000,000
When you sell the Bonds, you will get IDR 204,000,000 with a profit value of IDR 4 million.
- Nominal Yield
Interest income from annual coupons paid to investors.
Coupon Rate = Interest Income : Nominal Value
- Current Yield
The annual coupon interest yield divided by the market price of the Bonds.
Current Yield = Annual Interest Income : Market Price of Bonds
- Yield to Maturity
This yield is commonly used because it is most in line with the compounded rate of return that is often anticipated by investors. Yield to Maturity (YTM) is given to investors if the Bond buyer continue holding the Bond until maturity. It should be remembered that Bond prices and yields move to opposite directions, if Bond prices increase, yields will decrease and vice versa.
YTM = (Coupon Value+((Maturity value-Current Bond Price) / Period of Bond to maturity)) : (Maturity value + Current Bond Price) / 2
- Yield to Call
Yield to Call (YTC) is the yield obtained by investors on repurchased Bonds. Issuers can buy and pay off Bonds before the maturity date.
YTC = (Coupon earnings per year + (Bond call price– Current Bond price) / number of years to nearest YTC)) / ((Call price + Current Bond price) / 2)
- Realized Yield
This is the level of profit anticipated by Bonds investors. Investors can also estimate the profit that can be obtained by using a trading strategy.
This is how to calculate the potential profit when you invest in Government Bonds. You can use the returns from this Bond investment as funds for the future. This investment can also be an investment instrument that balances other instruments.
Benefits of Investment Type Government Bonds with DBS Treasures
You already know how to calculate the potential profit from investing in Government Bonds. Now is the time to find out what benefits you gain by investing in Government Bonds at DBS Treasures as the right priority bank to support your investment. Here are the benefits if you become a DBS Treasures priority banking Client:
- Competitive Regular Coupons
You will gain coupons that are paid regularly and periodically during the investment period by the Bonds issuers.
- Competitive Coupons
Provides competitive coupon rates. The coupon rate is also competitive above the average Fixed Deposit interest. On Fixed Deposits, the amount of income tax is 20%, while on Bonds it is 15%.
- Get Potential Capital Gains
You can sell the type of Bonds you hold at any time before the maturity date and you can potentially gain a high rate of return.
- No Additional Cost
No additional costs, there will only be a spread or the difference between the bid and offer.
- Conduct Transactions 24/7
Enjoy the convenience of buying and selling your Bonds through a single application. There are also a variety of Bond products that can be traded only through the digibank by DBS Application.
Priority banking DBS Treasures as the right investment partner can support you by offering many conveniences when investing in Government Bonds.
Not only that, you can also confidently make investment decisions that seizes the momentum with a wealth of curated insights based on your aspirations and profile. You can find further information here.
