How current yield is calculated
Current yield compares the bond's fixed annual coupon payment to what you'd actually pay for it today, rather than to its face value — so it reflects discounts or premiums in the market price.
- Face value — the bond's par value, repaid at maturity
- Coupon rate — the fixed annual interest rate stated on the bond
- Market price — what the bond currently costs to buy
More detail
Why current yield differs from the coupon rate
The coupon rate is fixed against face value and never changes. Current yield instead divides by market price, so it rises above the coupon rate when a bond trades at a discount (market price below face value) and falls below it when the bond trades at a premium.
What current yield leaves out
Current yield only measures income relative to price today — it doesn't account for the gain or loss you'd realize if you hold the bond to maturity and it's repaid at face value. Yield to maturity captures that full picture; current yield is a quicker, partial snapshot.
Quick check. If market price equals face value (a bond trading at par), current yield always equals the coupon rate exactly — use this as a sanity check on any result above.
Frequently asked questions
What is current yield for a bond with a 10,000 face value, 5% coupon, bought at 9,500?
Annual coupon = 10,000 × 5% = 500. Current yield = 500 ÷ 9,500 × 100 ≈ 5.26% — higher than the 5% coupon rate because the bond was bought at a discount to face value. Enter your own numbers above to check other cases.
Why is current yield higher than the coupon rate when I buy below face value?
Current yield divides the fixed annual coupon by the market price you actually paid, not by face value. Paying less than face value (a discount) means the same coupon payment is a larger percentage of your cost, so current yield rises above the coupon rate.
Is current yield the same as yield to maturity (YTM)?
No. Current yield only compares annual coupon income to today's market price. YTM also factors in the capital gain or loss you'd realize if the bond is held to maturity and repaid at face value, plus the time value of money — making YTM a more complete return measure.
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