How to Determine the Total Return of a Bond Fund

Reinvest bond payments to maximize returns.

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A single bond produces returns in the form of periodic payments, or coupons. Each of these coupons is a percentage of the bond's par value, which the bond pays out when it matures. You may experience additional returns or a loss because of the difference between the bond's par value and the price you pay for the bond. When you invest in a bond fund rather than a single bond, you can invest your periodic returns, compounding your gains.

Step 1

Add 1 to the coupon rate on the bond in which you're investing. For example, if the bond pays a 3.5 percent, semi-annual coupon, add 1 to 0.035 to get 1.035. This is the coupon multiplier.

Step 2

Calculate the number of periods for which you will invest in the fund. For example, if you will invest in the fund for five years, and the bond pays coupons every six months, you will invest in the bond for 10 periods.

Step 3

Raise the coupon multiplier that you calculated to the power of the number of periods. Continuing the example, raise 1.035 to the power of 10 to get 1.41.

Step 4

Multiply the bond fund's original principal by this factor. For example, if the principal is $8,000, multiply $8,000 by 1.41 to get $11,280.

Step 5

Subtract from this value the amount that you initially invest in the fund. For example,if you invest $10,000, subtract $10,000 from $11,280 to get $1,280. This is your total return from the bond fund.