# 4.6 Lessons learnt

1. More important. I think we should state here that there are 2 ways of calculating this:
1. The correct way: effective yield = coupon + redemption based on average investment price (dat wil zeggen van 95 naar 100 in 5 jaar dat is een gemiddeld geinvesteerd vermogen van 97,5%)
2. The way that somebody can use in practice. Especially when there is a short duration, the effect of above is low
• Bonds don’t pay out dividends, but you are entitled to receive interest payments. These payments are called coupons. The coupon gets paid on the coupon date, which again impacts the eventual yield.
• When investing in bonds, it is crucial to realize that there is a difference between coupon yield, often expressed in the denomination of the bond, and the effect, which considers the redemption profit and loss towards maturity.

• The formula to calculate the effective yield on your bonds is:
1. Calculate Coupon yield =

Interest percentage

Nominal value

2. Calculate redemption profit/loss =

Nominal value -/- the price of the bond in %

3. Calculate yearly redemption profit/loss =

Redemption profit / maturity

4. Calculate the effective yield =

Coupon yield + redemption profit/loss