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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 percentage return an investor would receive if they purchased the bond at its current price.
The calculator uses the current yield formula:
Where:
Explanation: The formula calculates the annual income return as a percentage of the bond's current market price.
Details: Current yield helps investors compare the income-generating potential of different bonds and assess the return they would receive if purchasing a bond at its current market price.
Tips: Enter the annual coupon payment in dollars and the current market price of the bond in dollars. Both values must be positive numbers.
Q1: How is current yield different from yield to maturity?
A: Current yield only considers the annual coupon payment relative to the current price, while yield to maturity accounts for all future cash flows including the return of principal at maturity.
Q2: What is a good current yield for bonds?
A: This depends on market conditions, the bond's credit rating, and maturity. Generally, higher-rated bonds have lower yields, while riskier bonds offer higher yields.
Q3: Does current yield change over time?
A: Yes, as the bond's market price fluctuates, the current yield will change accordingly, even if the coupon payment remains constant.
Q4: Can current yield be higher than yield to maturity?
A: Yes, when a bond is trading at a discount to its face value, current yield may be higher than yield to maturity.
Q5: Is current yield the same as dividend yield for stocks?
A: They are similar concepts but calculated differently. Dividend yield measures annual dividends relative to stock price, while current yield measures coupon payments relative to bond price.