Current Yield
Annual coupon income divided by current market price. Ignores any capital gain or loss to maturity, so it understates total return on a discount bond and overstates it on a premium bond.
When to use: Use for a quick income-yield read on a bond — comparable in spirit to the dividend yield on a stock. For total return, use YTM instead.
Formula
Variables
| Symbol | Name | Description | Unit |
|---|---|---|---|
| CurrentYield | Current Yield | Annual coupon income relative to market price | % |
| F | Face Value | Par value paid at maturity | $ |
| CR | Coupon Rate | Annual coupon rate as a decimal (e.g. 0.05 for 5%) | % |
| P | Bond Price | Market price of the bond per face value unit | $ |
Real-Life Examples
Example 1: Discount Bond Current Yield
$1,000-face, 5% coupon bond trading at $925.61.
Given
Step-by-Step
The bond yields 5.40% in income, more than the 5% coupon rate because the discount price boosts the income yield. Total return (YTM ≈ 6%) is higher still since the buyer also captures the pull-to-par capital gain.
Frequently Asked Questions
For discount bonds, CY < YTM (capital gain to par adds to total return). For premium bonds, CY > YTM (capital loss to par subtracts). For par bonds, CY = YTM = coupon rate. The gap widens with longer maturities and bigger price-to-par discrepancies.
Loosely — both express annual income relative to price. But bond coupons are contractual and have a maturity date pulling price toward par, while dividends are discretionary and stocks have no maturity. YTM is the more apples-to-apples bond yield for total-return comparisons.