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.

Related Links:
Offering both income and relative security, these uncommon shares may work for you. A Primer On Preferred Stocks
Despite their reputation, the debt securities known as "junk bonds" may actually reduce risk in your portfolio. High Yield, Or Just High Risk?
Investing in bonds - What are they, and do they belong in your portfolio? Bond Basics Tutorial
Learn the complex concepts and calculations for trading bonds including bond pricing, yield, term structure of interest rates and duration. Advanced Bond Concepts

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%.

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.

This article relies largely or entirely upon a single source. Please help improve this article by introducing appropriate citations of additional sources. (July 2008)

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:

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.

Contents 1 Relationship between yield to maturity and coupon rate 2 Example Calculation 3 See also 4 References

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.

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:

See also

adjusted current yield

References

• Current Yield at investopedia.com

v • d • e Bond market Bond · Debenture · Fixed income Types of bonds by issuer Agency bond · Corporate bond (Senior debt, Subordinated debt) · Distressed debt · Emerging market debt · Government bond · Municipal bond · Sovereign bond Types of bonds by payout Accrual bond · Auction rate security · Callable bond · Commercial paper · Convertible bond · Exchangeable bond · Fixed rate bond · Floating rate note · High-yield debt · Inflation-indexed bond · Inverse floating rate note · Perpetual bond · Puttable bond · Reverse convertible · Zero-coupon bond Securitized products Asset-backed security · Collateralized debt obligation · Collateralized mortgage obligation · Commercial mortgage-backed security · Mortgage-backed security Commercial Mortgage Securities Association (CMSA) · International Capital Market Association (ICMA) · Securities Industry and Financial Markets Association (SIFMA)

This economics or finance-related article is a stub. You can help Wikipedia by expanding it.

This entry is from Wikipedia, the leading user-contributed encyclopedia. It may not have been reviewed by professional editors (see full disclaimer)