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Distinguish between current yield an yield to maturity of a fixed income security how are these yields calculated?
Wiki User
∙ 13y ago
Current yield is equal to the annual interest payment divided by the market price. It is the actual yield an investor will receive (instead of what is stated). For example, if a bond has a stated rate of 5 percent, but is selling below par, the investor would receive more than a 5 percent return. If the bond is selling above par, the current yield is actually less than 5 percent.
Yield to maturity is the total return an investor will receive if the security is held until the maturity date, which is all of the annual interest payments and the difference between the original price and the principal you will receive at maturity. This formula is much more complicated but there are websites that will do it for you. Try moneychimp.com which has a calculator for the current yield and YTM.
Wiki User
∙ 13y ago
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