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Current Yield Formula:
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Current yield is a financial ratio that shows the annual income return on a bond investment relative to its current market price. It represents the percentage return an investor would receive if they purchased the bond at its current price and held it for one year.
The calculator uses the current yield formula:
Where:
Explanation: The formula calculates the annual income as a percentage of the bond's current market price, providing a simple measure of investment return.
Details: Current yield helps investors compare different bond investments, assess income potential, and make informed decisions about bond portfolio management. It's particularly useful for income-focused investors.
Tips: Enter the annual coupon payment and current bond price in the same currency units. Both values must be positive, with bond price greater than zero.
Q1: What's the difference between current yield and yield to maturity?
A: Current yield only considers annual coupon payments, while yield to maturity accounts for total return including price appreciation/depreciation if held to maturity.
Q2: What is considered a good current yield?
A: This depends on market conditions, bond quality, and investor objectives. Generally, higher yields indicate higher risk. Compare with similar bonds and risk-free rates.
Q3: Does current yield change over time?
A: Yes, as bond prices fluctuate in the secondary market, the current yield changes inversely with price movements.
Q4: When is current yield most useful?
A: For income investors focusing on regular coupon payments, and for bonds trading close to par value where current yield approximates yield to maturity.
Q5: What are the limitations of current yield?
A: It ignores capital gains/losses, time value of money, and reinvestment risk. For comprehensive analysis, consider yield to maturity and total return.