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Current Yield

Current yield is a financial metric that calculates the annual income (interest or dividends) from an investment as a percentage of the investment’s current price. For bonds, it is the bond’s annual coupon payment divided by its current market price. The current yield gives investors an idea of the return they can expect based on the bond’s current price, not its face value. It is particularly useful for comparing the income-generating potential of different investments.

Example

A bond with a face value of $1,000, a 5% annual coupon, and a current market price of $950 has a current yield of 5.26% ($50 annual coupon ÷ $950 price).

Key points

• Current yield is the annual income (interest or dividends) from an investment divided by its current price.

• It shows the return an investor can expect based on the investment’s market price.

• For bonds, it is calculated by dividing the annual coupon payment by the current market price.

Quick Answers to Curious Questions

Current yield is calculated by dividing the bond’s annual coupon payment by its current market price.

It helps investors compare the income-generating potential of different bonds or investments based on their current prices.

Current yield only considers the bond’s annual income relative to its market price, while yield to maturity accounts for all future coupon payments and any capital gain or loss when the bond matures.