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Investment Dictionary:

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 held it for a year. This measure is not an accurate reflection of the actual return that an investor will receive in all cases because bond and stock prices are constantly changing due to market factors.



Also referred to as "bond yield", or "dividend yield" for stocks.

Investopedia Says:
For example, if a bond is priced at $95.75 and has an annual coupon of $5.10, the current yield of the bond is 5.33%. If the bond is a 10-year bond with nine years remaining and you were only planning to hold it for one year, you would receive the $5.10, but your actual return would depend on the bond's price when you sold it. If, during this period, interest rates rose and the price of your bond fell to $87.34, your actual return for the period would be -3.5% (-$3.31/$95.75) because although you gained $5.10 in dividends, your capital loss was $8.41.

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Annual interest on a bond divided by the market price. It is the actual income rate of return as opposed to the coupon rate (the two would be equal if the bond were bought at par) or the yield to maturity. For example, a 10% (coupon rate) bond with a face (or par) value of $1,000 is bought at a market price of $800. The annual income from the bond is $100. But since only $800 was paid for the bond, the current yield is $100 divided by $800, or 121⁄2%.

 
Real Estate Dictionary: Current Yield

A measurement of investment returns based on the percentage relationship of annual cash income to the investment cost. The formula is

Current yield = current income

investment cost
Example: Abel purchases a parking lot for $10,000. It provides $5,000 of parking revenues each year. Property taxes and insurance total $3,500, leaving $1,500 of annual before-income-tax Cash Flow. The current yield is 15%:

$1,500 = 15%

$10,000

See also Yield to Maturity.

 
Wikipedia: current yield

Current yield is a financial term used in reference to bonds. It is the ratio of the annual interest payment and the bond's current 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;

- discount: YTM > current yield > coupon yield

- a premium: coupon yield > current yield > YTM

- par: YTM = current yield = coupon 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.



 
 

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Copyrights:

Investment Dictionary. Copyright ©2000, Investopedia.com - Owned and Operated by Investopedia Inc. All rights reserved.  Read more
Financial & Investment Dictionary. Dictionary of Finance and Investment Terms. Copyright © 2006 by Barron's Educational Series, Inc. All rights reserved.  Read more
Real Estate Dictionary. Dictionary of Real Estate Terms. Copyright © 2004 by Barron's Educational Series, Inc. All rights reserved.  Read more
Wikipedia. This article is licensed under the GNU Free Documentation License. It uses material from the Wikipedia article "Current yield" Read more

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