1. What is Current Yield?

The current yield is a measure of the annual income (coupon payments) an investment provides relative to its current market price. For bonds, it represents the annual return based on the bond's current price rather than its face value.

2. How Does the Calculator Work?

The calculator uses the current yield formula:

Where:

• Annual Coupon — Annual interest payment in dollars
• Price — Current market price of the bond

Explanation: The formula calculates what percentage return the bond's coupon payments represent relative to its current market price.

3. Importance of Current Yield Calculation

Details: Current yield helps investors compare bonds with different prices and coupon rates. It's particularly useful for assessing income potential when bond prices fluctuate in the secondary market.

4. Using the Calculator

Tips: Enter the bond's annual coupon payment and its current market price in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How does current yield differ from yield to maturity?
A: Current yield only considers annual coupon payments, while yield to maturity accounts for all future cash flows including principal repayment at maturity.

Q2: What is a good current yield for bonds?
A: This depends on market conditions and risk tolerance. Generally, higher-rated bonds have lower yields than riskier bonds.

Q3: Why does current yield change?
A: Current yield changes when the bond's market price changes, even though the coupon payment remains constant.

Q4: Can current yield be higher than coupon rate?
A: Yes, when the bond's price is below its face value (trading at a discount), the current yield will be higher than the coupon rate.

Q5: Is current yield the same as dividend yield?
A: No, current yield refers to bonds while dividend yield refers to stocks, though both measure income relative to price.