1. What is Current Yield?

The current yield is a bond's annual interest payment (coupon) divided by its current market price. It represents the annual return an investor would earn if they bought the bond at its current market price and held it for one year.

2. How Does the Calculator Work?

The calculator uses the current yield formula:

Where:

• \( \text{Annual Coupon} \) — Annual interest payment in USD
• \( \text{Market Price} \) — Current market price of the bond in USD

Explanation: The formula calculates the bond's yield based on its current price rather than its face value.

3. Importance of Current Yield

Details: Current yield helps investors compare bonds with different prices and coupon rates. It's particularly useful for assessing income-generating potential of bonds trading at premiums or discounts.

4. Using the Calculator

Tips: Enter the bond's annual coupon payment and its current market price. 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 the annual coupon payments, while yield to maturity accounts for all future cash flows including principal repayment at maturity.

Q2: What does it mean when current yield is higher than coupon rate?
A: This occurs when the bond is trading at a discount (below face value), meaning you're getting more yield for your investment.

Q3: Can current yield be negative?
A: No, since both coupon payments and bond prices are positive values, current yield is always positive.

Q4: Why would a bond's current yield change?
A: Current yield changes as the bond's market price fluctuates in response to interest rate changes, credit risk, and other market factors.

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