1. What is Current Yield?

The current yield is a bond's annual interest payment divided by its current market price. It represents the return an investor would expect if the bond was purchased at the current market price and held for one year.

2. How Does the Calculator Work?

The calculator uses the current yield formula:

Where:

• Annual Coupon Payment — The annual interest payment received from the bond
• Bond Price — The current market price of the bond

Explanation: The formula calculates the percentage return based on the bond's annual interest relative to its current price.

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 potential when bond prices fluctuate in the secondary market.

4. Using the Calculator

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

5. Frequently Asked Questions (FAQ)

Q1: How is current yield different from yield to maturity?
A: Current yield only considers the annual coupon payment, while yield to maturity accounts for all future cash flows including the bond's face value at maturity.

Q2: What is a good current yield?
A: This depends on market conditions and investor goals. Higher yields typically indicate higher risk.

Q3: Does current yield change over time?
A: Yes, as the bond's market price fluctuates, the current yield will change even if the coupon payment remains constant.

Q4: Why would a bond's current yield differ from its coupon rate?
A: When bonds trade at prices different from their face value, the current yield will differ from the coupon rate.

Q5: Can current yield be negative?
A: No, since both coupon payments and bond prices are positive values, current yield cannot be negative.