How to Calculate Current Yield
The current yield is simply the bond's annual interest payment as a percentage of the current bond price. It can be calculated as follows:
Formula:
Current yield = Coupon payment / Current bond price
Or,
Current Yield = Annual Interest Payment / Current Market Price of Bond
Note: if the market price for the bond is equal to its face value, then the current yield will be the same as nominal yield.
Example 1:
a bond with a coupon yield of 5.5 percent trading at 105 ($1,050) will have a coupon payment of: 5.5% * $1,000 = $55, and a current yield of: 55 / 1050 = 5.24%.
Example 2:
Suppose that a bond with a coupon rate of 6% is selling at $800 ($200 below its issue price of $1,000). Then:
The annual interest payment = 6% * $1,000 = $60
The current yield = 60 / 800 = 7.5%
* Next: How to Calculate Coupon Yield
Formula:
Current yield = Coupon payment / Current bond price
Or,
Current Yield = Annual Interest Payment / Current Market Price of Bond
Note: if the market price for the bond is equal to its face value, then the current yield will be the same as nominal yield.
Example 1:
a bond with a coupon yield of 5.5 percent trading at 105 ($1,050) will have a coupon payment of: 5.5% * $1,000 = $55, and a current yield of: 55 / 1050 = 5.24%.
Example 2:
Suppose that a bond with a coupon rate of 6% is selling at $800 ($200 below its issue price of $1,000). Then:
The annual interest payment = 6% * $1,000 = $60
The current yield = 60 / 800 = 7.5%
* Next: How to Calculate Coupon Yield