Dr. Vance holds a Ph.D. in Finance and has over 20 years of experience in bond valuation and yield curve analysis.
The **Current Yield Calculator** is a key metric for bond investors, measuring the ratio of the bond’s annual interest payment to its current market price. This four-variable calculator solves for any missing input: **Annual Interest Payment (AIP)**, **Bond Price (BP)**, **Par Value (PV)**, or the **Current Yield Ratio (CY)**. **Input any three of the four core variables** to find the missing one.
Current Yield Calculator
Current Yield Formulas
The Current Yield (CY) is calculated by dividing the Annual Interest Payment (AIP) by the Bond Price (BP). Note that AIP is the Par Value (PV) multiplied by the coupon rate:
Formula Source: Investopedia: Current Yield
Variables Explained
The calculation requires inputs related to the bond’s cash flows and market value:
- Annual Interest Payment (AIP): The total cash interest paid by the bond issuer in one year, usually the coupon rate times the par value.
- Bond Price (BP): The current market price at which the bond can be bought or sold.
- Par Value (PV): The face value of the bond, typically \$1,000, which is repaid at maturity.
- Current Yield (CY): The annual rate of return based on the bond’s interest payments and current price (expressed as a percentage).
Related Calculators
Explore other fixed-income and investment metrics:
- Future Value Calculator
- Present Value Calculator
- Internal Rate of Return Calculator
- Required Rate of Return Calculator
What is the Current Yield?
The **Current Yield** is a measure of the immediate return an investor receives from a bond. It serves as a simple gauge of the income generated by the bond relative to its current market cost. It is particularly useful for investors focused on current cash flow rather than total return, such as those relying on investment income for retirement or living expenses.
The Current Yield differs significantly from the coupon rate (which is based on par value) and the Yield to Maturity (YTM, which accounts for price appreciation/depreciation and reinvestment of interest). If a bond is trading at a premium (BP > PV), the Current Yield will be lower than the coupon rate. If it’s trading at a discount (BP < PV), the Current Yield will be higher than the coupon rate.
How to Calculate Current Yield (Example)
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Identify the Payments and Price:
A bond has an $\mathbf{Annual\ Interest\ Payment\ (AIP)}$ of $\mathbf{\$60.00}$ (based on a \$1,000 Par Value and 6% coupon). The bond is currently trading at a $\mathbf{Bond\ Price\ (BP)}$ of $\mathbf{\$1,050.00}$ (a premium).
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Apply the Current Yield Formula:
Divide the annual payment by the current price: $$ CY = \frac{AIP}{BP} $$
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Determine the Ratio:
$$ CY = \frac{\$60.00}{\$1,050.00} \approx 0.0571 \text{ or } \mathbf{5.71\%} $$ Note that since the bond is trading at a premium, the Current Yield (5.71%) is lower than the coupon rate (6%).
Frequently Asked Questions (FAQ)
A: Current Yield only considers the annual interest paid relative to the current price. YTM is the total expected return if the bond is held until maturity, accounting for reinvestment of interest and the capital gain or loss realized when the bond matures at par value.
A: Indirectly, yes. The Annual Interest Payment (AIP) is determined by the coupon rate multiplied by the bond’s Par Value. The formula itself uses the AIP, not the coupon rate directly.
A: This happens when the bond is trading at a premium (its Bond Price is higher than its Par Value). Because the denominator (Bond Price) is higher than the par value, the resulting yield ratio is lower than the stated coupon rate.
A: No. Zero-coupon bonds do not make annual interest payments (AIP = 0), so the Current Yield for these bonds is always zero, making the metric irrelevant for their analysis.