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Current Yield Calculator
Calculate the annual income return on a bond investment
Current Yield
Annual Income
Yield to Price Ratio
Current yield is a financial metric used to calculate the annual income return on a bond investment. Unlike yield to maturity, current yield does not account for the future value of the bond when it matures.
It’s a simple way to evaluate the income generated by a bond relative to its current market price. Higher current yields indicate better income returns relative to the bond’s price.
Example 1: Premium Bond
A bond with a face value of $1,000, a 5% coupon rate, and a current market price of $1,100.
Annual Coupon Payment: $1,000 × 5% = $50
Current Yield: ($50 ÷ $1,100) × 100% = 4.55%
Even though the coupon rate is 5%, the current yield is lower because the bond is trading at a premium.
Example 2: Discount Bond
A bond with a face value of $1,000, a 5% coupon rate, and a current market price of $900.
Annual Coupon Payment: $1,000 × 5% = $50
Current Yield: ($50 ÷ $900) × 100% = 5.56%
The current yield is higher than the coupon rate because the bond is trading at a discount.
Understanding Current Yield
Current Yield
The annual income return on a bond investment, expressed as a percentage of the bond’s current market price. It measures the income generated by the bond relative to its price.
Coupon Rate vs. Current Yield
The coupon rate is fixed and based on the bond’s face value, while current yield fluctuates with the bond’s market price. They are equal only when the bond trades at par value.
Premium and Discount Bonds
When a bond trades above face value (premium), its current yield is lower than its coupon rate. When it trades below face value (discount), its current yield is higher.
Current Yield vs. YTM
Current yield only considers annual coupon payments, while YTM accounts for all future cash flows including the return of principal at maturity. YTM provides a more comprehensive measure of return.
When to Use Current Yield
Current yield is most useful for investors focused on income generation rather than capital gains. It’s a simple metric for comparing the income returns of different bonds.
Limitations of Current Yield
Current yield doesn’t account for capital gains or losses if the bond is held to maturity, nor does it consider the time value of money. For a complete picture, investors should also consider YTM and duration.