Current yield
The annual coupon divided by the current price. It measures the income received against what the bond costs today, and nothing else.
Example
A 5% coupon bond priced at 945 has a current yield of 50 / 945 = 5.2910%.
Important
It ignores the pull to par, so it understates the return on a discount bond and overstates it on a premium bond. It is the figure most often displayed and the only one of the three that is neither a contractual fact nor a return.
Related terms
- Yield to maturity — The single discount rate at which the present value of a bond's remaining cash flows equals its current price. It has no closed-form solution for a multi-period bond and is found numerically.
- Coupon — The periodic interest a bond pays, quoted as a percentage of par value rather than of the price. It is fixed by the contract at issue and does not change with the market.
- Par value — The sum the issuer repays at maturity, per unit of the bond. Also called face value or principal. It is the base on which the coupon percentage is calculated.
- Dividend yield — The cash dividend paid over a year divided by the current share price - the income return actually received by a holder.
Lessons that explain it
All 578 terms in the Investing glossary