How this calculator works
Current yield is the annual coupon divided by the price you pay for the bond. It measures the income the bond produces over the next year relative to its cost, and it ignores capital gains or losses from buying at a discount or premium and holding to maturity. A bond bought at $950 with a $50 annual coupon has a current yield of 5.26%, even though its yield to maturity is higher because the investor also gains $50 at redemption. The reverse mode answers a different question: what price would give a stated current yield on this coupon?
Formula
Current yield = annual coupon / market price. Annual coupon = face value x annual coupon rate. Coupon per period = annual coupon / frequency. Solving for price, price = annual coupon / target current yield.
Worked example
A 5% coupon on a $1,000 face value pays $50 a year. At a market price of $950 the current yield is 50 / 950 = 5.2632%. To earn a current yield of 5.5% on the same $50 coupon, an investor would need to buy at 50 / 0.055 = $909.09.
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Frequently asked questions
Why is current yield different from yield to maturity?
Current yield counts only coupon income. Yield to maturity also spreads the difference between the purchase price and the redemption value over the remaining term, and assumes coupons are reinvested at that yield.
Does coupon frequency change the current yield?
No. The annual coupon is the same whether it is paid once or twelve times a year. Frequency changes the size of each payment and the compounding used for other measures.
When is current yield most useful?
It is a quick income measure for investors who care about cash received relative to price. It is a poor measure of total return, especially for bonds selling far from face value.