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Current Bond Yield Formula:
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Current bond yield (also known as current yield) is a financial ratio that measures the annual income return on a bond investment relative to its current market price. It provides investors with a quick way to assess the income-generating potential of a bond.
The calculator uses the current yield formula:
Where:
Explanation: The formula calculates the percentage return an investor would receive if they purchased the bond at its current market price and held it for one year, based on the annual coupon payments.
Details: Current yield is important for bond investors to compare the income potential of different bonds, assess whether a bond is trading at a premium or discount, and make informed investment decisions based on income requirements.
Tips: Enter the annual coupon payment and current bond price in the same currency units. Both values must be positive numbers greater than zero for accurate calculation.
Q1: What's the difference between current yield and yield to maturity?
A: Current yield only considers annual coupon payments relative to current price, while yield to maturity accounts for total return including price appreciation/depreciation if held to maturity.
Q2: What is a good current yield for bonds?
A: This depends on market conditions, bond quality, and duration. Generally, higher-rated bonds have lower yields, while riskier bonds offer higher yields to compensate for increased risk.
Q3: Why does current yield change?
A: Current yield changes as bond prices fluctuate in the secondary market. When bond prices rise, current yield falls, and vice versa.
Q4: Does current yield consider reinvestment risk?
A: No, current yield does not account for reinvestment risk or the time value of money. It's a simple income measure.
Q5: When is current yield most useful?
A: Current yield is most useful for income-focused investors who prioritize regular coupon payments over total return or price appreciation.