Definition
Current yield is a simple income measure that shows the annual coupon return relative to what you pay for the bond today. Unlike YTM, it ignores capital gains/losses from holding to maturity and the time value of money. It is useful for quick income comparisons but inadequate for total return analysis.
functions Formula
Current Yield = Annual Coupon / Market Price × 100%
lightbulb Example
A bond with $50 annual coupon trading at $960. Current yield = $50/$960 = 5.21%. This is higher than the 5% coupon rate because the bond trades at a discount.
verified_user Key Points
- Simple income measure—ignores capital gains/losses
- Higher than coupon rate when bond trades at discount
- Lower than coupon rate when bond trades at premium
- Use YTM for complete return analysis