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Current Yield Formula:
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Current yield is a financial ratio that measures the annual income return on a bond investment relative to its current market price. It represents the bond's coupon payments as a percentage of its market value.
The calculator uses the current yield formula:
Where:
Explanation: The formula calculates the percentage return an investor would earn if they purchased the bond at its current market price and held it for one year.
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 in currency units and the current bond price in currency units. Both values must be positive numbers greater than zero.
Q1: What is 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 includes both coupon payments and capital gains/losses if held to maturity.
Q2: What are typical current yield ranges?
A: Current yields vary by bond type and market conditions, typically ranging from 2-8% for investment-grade bonds, with higher yields for riskier bonds.
Q3: How does bond price affect current yield?
A: When bond prices rise, current yield falls (inverse relationship), and when bond prices fall, current yield rises.
Q4: Is current yield the same as dividend yield?
A: No, current yield applies to bonds (coupon payments), while dividend yield applies to stocks (dividend payments).
Q5: What are the limitations of current yield?
A: Current yield doesn't account for bond maturity, call features, reinvestment risk, or capital gains/losses, making yield to maturity a more comprehensive measure.