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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 and assess their income-generating potential. It's particularly useful for income-focused investors who prioritize regular coupon payments.
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'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 returns including price appreciation/depreciation until maturity.
Q2: Why does current yield change when bond prices change?
A: Current yield is inversely related to bond price - when bond prices rise, current yield falls, and vice versa, assuming coupon payments remain constant.
Q3: What is a good current yield?
A: A "good" current yield depends on market conditions, bond credit quality, and investor objectives. Generally, higher yields indicate higher risk.
Q4: Does current yield consider bond maturity?
A: No, current yield only looks at the current income stream and doesn't factor in the bond's time to maturity or principal repayment.
Q5: Can current yield be negative?
A: No, current yield cannot be negative as it represents income payments (which are positive) divided by bond price (which is positive).