1. What is Current Yield?

Current Yield is a measure of the annual income (dividends or interest) that an investment provides relative to its current market price. For bonds, it represents the annual coupon payments divided by the bond's market price.

2. How Does the Calculator Work?

The calculator uses the Current Yield formula:

Where:

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

Explanation: The formula calculates the percentage return based on the bond's current market 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 investments when market prices fluctuate.

4. Using the Calculator

Tips: Enter the annual coupon payment in dollars and the 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 annual coupon payments, while yield to maturity accounts for all future cash flows including principal repayment at maturity.

Q2: What does a high current yield indicate?
A: A high current yield may indicate either a high coupon rate or a bond trading at a discount to its face value (or both).

Q3: Can current yield be negative?
A: No, current yield cannot be negative as both coupon payments and market price are positive values.

Q4: Why use current yield instead of coupon rate?
A: Current yield reflects the actual return based on current market price, while coupon rate is fixed based on face value.

Q5: How does market price affect current yield?
A: As market price decreases, current yield increases (and vice versa), assuming coupon payments remain constant.