# Current yield

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Current yield

The current yield, interest yield, income yield, flat yield or running yield is a financial term used in reference to bonds and other fixed-interest securities such as gilts. It is the ratio of the annual interest payment and the bond's current clean price:

$\text{Current yield} = \frac{\text{Annual interest payment} }{\text{Clean price} }.$

The current yield only therefore refers to the yield of the bond at the current moment. It does not reflect the total return over the life of the bond. In particular, it takes no account of reinvestment risk (the uncertainty about the rate at which future cashflows can be reinvested) or the fact that bonds usually mature at par value, which can be an important component of a bond's return.

## Relationship between yield to maturity and coupon rate

The concept of current yield is closely related to other bond concepts, including yield to maturity, and coupon yield. When a bond sells at;

• a discount: YTM > current yield > coupon yield
• a premium: coupon yield > current yield > YTM
• par: YTM = current yield = coupon yield.

Current Yield = Total Yield - Capital Gains Yield

The current yield is the annual payment divided by the price. Algebraically expressed as Y = R/P, where Y is yield, R is the annual payment, and P represents price. This creation shows the fine line between high and low returns over more than one period. A high yield will produce a relative payment and a low yield will do the same. When the yields of several periods are compared a higher yield will show a higher payment with less risk associated. This equates to investors expecting a higher yield over a length of investing. The possibility of market risks are ignored.

## Example Calculation

To calculate the current yield of a bond with a face value of $100 and a coupon rate of 5.00% that is selling at$95.00 (clean, not including accrued interest), use:

$\text{Current Yield} = \frac{F \times r}{P} = \frac{100 \times 5.00%}{95.00} = \frac{5.00}{95.00} = 5.2631%$

## References

Wikimedia Foundation. 2010.

### Look at other dictionaries:

• current yield — The ratio of the coupon to the current market price of the debt instrument. Chicago Board of Trade glossary (1) For bonds, a measure of the simple interest annual yield for investments with coupon rates and with maturities of one year or more. To …   Financial and business terms

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• Current Yield — Annual income (interest or dividends) divided by the current price of the security. This measure looks at the current price of a bond instead of its face value and represents the return an investor would expect if he or she purchased the bond and …   Investment dictionary

• current yield — noun : the rate of return given by a bond on its current price without allowance for the fact that it will be paid at par at maturity * * * the ratio of the annual interest or dividend to the actual market price of a bond or stock. Also called… …   Useful english dictionary

• current yield — See yield …   Big dictionary of business and management

• current yield — the ratio of the annual interest or dividend to the actual market price of a bond or stock. Also called current return. * * * …   Universalium

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• current yield — /ˌkʌrənt ji!ld/ noun a dividend calculated as a percentage of the current price of a share on the stock market …   Dictionary of banking and finance

• Current yield —   A measurement of return to a bond holder. It is calculated as the ratio of coupon to market price expressed as a percentage …   International financial encyclopaedia

• yield — 1 / yēld/ vt: to produce as return from an expenditure or investment: furnish as profit or interest an account that yield s 6 percent vi 1: to give place or precedence (as to one having a superior right or claim) 2: to relinquish the floor of a… …   Law dictionary