Calculating Bond Returns with Clean Prices and Accrued Interest

Summary

The document explains how to calculate a bond’s discrete-period return from its beginning and ending clean prices, accrued interest at both dates, and coupon payments received during the period. The calculation includes bond income as well as the change in price, following the general approach used for other income-producing assets.

The stated formula compares ending value, including accrued interest and coupons received, with beginning value, including accrued interest. This is a compact total return calculation rather than a price-only return. The document does not discuss reinvestment of coupons, yield conventions, transaction costs, or how to handle periods spanning coupon dates, so those details may matter in a more complete historical return series.

Key ideas

• Bond returns include both price changes and income from coupon payments.
• The calculation uses clean prices plus accrued interest at the beginning and end of the period.
• Coupon payments received during the period are added to the ending value.
• The formula gives a discrete-period return and does not specify coupon reinvestment or trading costs.

Tags

# Calculating historical Bond returns


# Calculating historical Bond returns












How would you calculate historical bond returns using bond prices? Would you treat bonds just like shares ?

Thanks

## Answer by Helin (score 3)

https://quant.stackexchange.com/a/30587

Returns of all assets are calculated in roughly same way, which boil down to changes in prices and returns due to income (e.g., coupon payments for bonds, dividends for stocks, etc.). The discrete period return of a bond is $$r = \frac{P_\text{end} + AI_\text{end} + \text{coupon payments during period}}{P_\text{beginning} + AI_\text{beginning}} - 1,$$ where $P$ is the clean price and $AI$ is the accrued interest.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.