| current yield The annual rate of return received from an investment, based on the income received during a year compared with the investment's current market price. For example, a bond selling at $800 and paying an annual interest of $80 provides a current yield of $80/$800 , or 10%. Also called rate of return, running yield. |
Current yield. Current yield is a measure of your rate of return on an investment, expressed as a percentage. With a bond, current yield is calculated by dividing the interest you collect by the current market price.
For example, if a bond paying 5% interest, or $50, is selling for $900, the current yield is 5.6%. If the market price is $1,200, the current yield is 4.2%. And if bond is selling exactly at par, or $1,000, the current yield is 5%, the same as the coupon rate.
If you own a stock, its current yield is the annual dividend divided by its market price.
What Does Current Yield Mean?
Annual income (interest or dividends) divided by the current price of a security. This measure considers the current price of a bond instead of its face value and reflects the return an investor would expect if he or she purchased the bond and held it for one year; it is not an accurate measure of the actual return that an investor will receive in all cases because bond and stock prices change constantly as a result of market factors. Also referred to as bond yield or, in the case of stocks, dividend yield.
Investopedia explains Current Yield
As an example, if a bond is priced at $95.75 and has an annual coupon of $5.10, the current yield of the bond will be 5.33%. If the bond is a 10-year bond with 9 years remaining until maturity and you were planning to hold it for only 1 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 the bond fell to $87.34, your actual return for your holding period would be -3.5% (-$3.31/$95.75) because although you gained $5.10 in dividends, your capital loss was $8.41.
Related Terms:
• Bond
• Coupon
• Dividend
• Yield
• Yield to Maturity—YTM
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