Current Yield of a Bond
The current yield of a bond measures the returns an investor can expect if he holds the bond for a period of one year. It is calculated as the annual interest received divided by the current price of the bond.
Current Yield = Annual Interest / Current Bond Price
The current bond price is the clean price of the bond.
One must note that the current yield represents the return from the bond at a particular time and does not represent the returns over the lifetime of the bond. The current yield also does not take into account the reinvestment risk.
Assume that a $100 par bond is currently trading at $95, and pays a coupon of 6%. The current yield will be given as follows:
Current yield = $6/$95 = 6.316%
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