1. What is Current Yield?

The current yield is a measure of a bond's annual return based on its annual coupon payments and current price, expressed as a percentage. It helps investors compare bonds with different prices and coupon rates.

2. How Does the Calculator Work?

The calculator uses the current yield formula:

Where:

• Annual Coupon Payment — The yearly interest payment the bondholder receives
• Bond Price — The current market price of the bond

Explanation: The formula shows what percentage return an investor would earn if they purchased the bond at its current market price.

3. Importance of Current Yield

Details: Current yield is important for bond investors to assess income potential, compare different bonds, and make investment decisions. It's particularly useful when evaluating bonds selling at a premium or discount to their face value.

4. Using the Calculator

Tips: Enter the bond's annual coupon payment in dollars 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 does it mean when current yield is higher than coupon rate?
A: This occurs when the bond is selling at a discount (below face value), meaning the investor gets higher relative income from the fixed coupon payments.

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 when the bond's market price fluctuates, even though the coupon payment remains fixed.

Q5: Is higher current yield always better?
A: Not necessarily - higher yield might indicate higher risk. Investors should also consider credit quality, maturity, and other factors.