What is current yield?
Current yield is the current value of a security and represents the return the owner could expect if they held the bond for a year, but not the actual return the investor gains if the bond if held into maturity. Current yield is an investment’s annual income – such a dividends or interest – divided by the current price of the investment.
Where have you heard about current yield?
You’ll most likely have heard about current yield in relation to bonds. The current yield aims to show investors what they may earn if they buy a bond and hold onto it for one year.
What you need to know about current yield.
Say you were looking to find the current yield of a bond worth £50. You'd first need to know what its annual return or coupon is. If the coupon is £5, then you'd divide £50 by £5, which equals a 10% current yield.
Although the current yield may help you to decide whether or not to invest at that particular point in time, it may not be the actual amount you end up actually receiving. This is because although £50 is the current price of the bond, by the time you sell your bond its value could have gone up or down.
Find out more about current yield.
Current yield is one type of bond yield. The other is yield to maturity.