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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 bond's coupon payments as a percentage of its market price.
The calculator uses the Current Yield formula:
Where:
Explanation: The formula calculates the annual return percentage based on the bond's coupon payments relative to its current market price.
Details: Current Yield helps investors compare different bond investments and assess the income-generating potential of fixed-income securities. It's particularly useful for evaluating bonds trading at premiums or discounts to their face value.
Tips: Enter the annual coupon payment and current market price in the same currency. 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 accounts for total returns including 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 refers to bonds and their coupon payments, while dividend yield refers to stocks and their dividend payments.
Q5: Why might current yield be misleading?
A: Current yield doesn't account for reinvestment risk, call provisions, or the bond's maturity date, which can affect total returns.