Here are some notes on current yield on bond notes in detail:
- Current yield is a measure of the income that a bondholder will receive in the form of interest payments relative to the current market price of the bond. It is calculated by dividing the annual coupon payment by the current market price of the bond.
- The current yield of a bond is not the same as the yield to maturity (YTM). The YTM is the total return that an investor will receive if they hold the bond to maturity. It takes into account the current yield, as well as the expected capital gains or losses.
- The current yield of a bond can be affected by a number of factors, including the coupon, the maturity, the credit rating, and the market interest rates.
- A bond with a high current yield may be attractive to investors who are looking for a high income stream. However, it is important to remember that the current yield does not take into account the risk of the bond. A bond with a high current yield may also be a risky investment.
- The current yield of a bond can be calculated using the following formula:
Current Yield = Annual Coupon Payment / Current Market Price of the Bond
For example, if a bond has a face value of $1,000, a coupon of $50, and a current market price of $900, the current yield would be:
Current Yield = $50 / $900 = 0.0555 = 5.55%