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Current Yield Formula:
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Bond yield represents the return an investor realizes on a bond investment. The current yield specifically measures the annual income (coupon payments) relative to the bond's current market price, providing a snapshot of the bond's income-generating potential.
The calculator uses the current yield formula:
Where:
Explanation: This formula calculates the simple current yield, which shows the annual return based on the bond's current market price rather than its face value.
Details: Calculating bond yield is essential for investors to compare different bond investments, assess income potential, and make informed decisions about portfolio allocation and risk management.
Tips: Enter the annual coupon payment in currency units and the current market price in the same currency units. Both values must be positive numbers greater than zero.
Q1: What is the difference between current yield and yield to maturity?
A: Current yield only considers annual coupon payments relative to current price, while yield to maturity accounts for total return including price appreciation/depreciation if held to maturity.
Q2: Why does bond yield move inversely to bond price?
A: When bond prices fall, the fixed coupon payments represent a higher percentage of the lower price, resulting in higher yield, and vice versa.
Q3: What are typical bond yield ranges?
A: Government bonds typically yield 1-5%, corporate bonds 3-8%, and high-yield bonds 6-12%, though these vary with economic conditions and credit quality.
Q4: How often are coupon payments made?
A: Most bonds pay coupons semi-annually, so the annual coupon is typically twice the semi-annual payment amount.
Q5: Does this calculator work for zero-coupon bonds?
A: No, zero-coupon bonds don't pay regular coupons, so different yield calculations (like yield to maturity) are needed for accurate assessment.