Series 79: Current Yield

Current Yield

A bond’s current yield (CY) is the actual income rate of return on a bond. It is computed as follows:

Example Question

A bond has a par value of $1,000 and pays a 6% coupon rate. If the market price of the bond rises to $1,200, what is the bond’s current yield?

Answer: 5%. A bond with a par value of $1,000 and a 6% coupon would pay interest of $60 per year. If the market price of the bond rises to $1,200, the current yield of the bond is $60 divided by $1,200, or 5%.

This example illustrates the inverse relationship between the changes in the price of a bond and its yield. If the bond price goes up, its yield falls, because it now costs more to obtain the same