Bond Current Yield Calculator

What current yield tells you

Current yield is a bond's income return measured against its price. It tells you, in a single percentage, how much annual coupon income you receive for every dollar you would spend buying the bond today. Think of it as the bond's income rate at its current market price, roughly what your return would be if you held it for the coming year and set aside everything else.

That focus on income relative to price is what makes it useful and what defines its limits. This calculator computes it from the bond's coupon and its market price, and along the way it also breaks out the actual cash you would receive in each coupon payment, which is handy for seeing the income in concrete terms rather than as a bare percentage.

The pieces the calculator shows

The tool reports three related figures, and it helps to see how they fit together. The annual coupon is the total interest the bond pays in a year, worked out as the coupon rate applied to the face value. The coupon per period takes that annual figure and splits it according to how often the bond pays, so a semi-annual bond shows half the annual coupon per payment, a quarterly bond a quarter, and so on. This is the real cash that lands in your account each time a coupon is paid.

The current yield itself is then the annual coupon divided by the market price, as a percentage. One thing worth noticing: the payment frequency changes the size of each individual coupon, but it does not change the current yield, which always compares the full annual coupon to the price. So the per-period figure is there to show you the rhythm of the income, while the yield measures its overall size against what you pay.

A worked example

Take a bond with a face value of 1,000 and a 5% coupon paid semi-annually, currently priced at 1,040.

The annual coupon is 5% of 1,000, which is 50 a year. Paid semi-annually, that arrives as two payments of 25 each, the coupon per period. For the yield, divide the annual 50 by the market price of 1,040, which gives a current yield of about 4.81%. See that it landed below the 5% coupon rate. That is because the bond is trading above its face value, at a premium: you are paying 1,040 to collect coupons of 50, so your income relative to your outlay is slightly less than the headline 5%. A bond bought below face value would show the opposite, a current yield above its coupon rate.

How the price bends the yield

The coupon a bond pays is fixed, but the price you pay for it is not, and that is what pulls the current yield above or below the coupon rate. It is worth seeing the three cases together.

Buy a bond at exactly its face value and the current yield equals the coupon rate, because you are paying face value for a coupon quoted against face value. Buy it below face value, at a discount, and the current yield rises above the coupon rate, since the same coupon costs you less. Buy it above face value, at a premium, as in the example, and the current yield falls below the coupon rate, since the same coupon costs you more. The coupon rate, in other words, is the yield only at face value; the moment the price moves, the current yield swings the other way to reflect what you actually paid.

Comparing bonds on income

Current yield earns its keep as a comparison tool. Because it expresses income as a percentage of price, it puts bonds with different coupons and different prices on a common footing, letting you line them up and see which delivers more income per dollar invested right now.

This is particularly valuable in the secondary market, where bonds trade at all sorts of prices away from their face value. Two bonds might carry very different coupon rates, but once you account for what each actually costs to buy, their current yields tell you directly which is the stronger income earner today. If income is what you are after, and you want a fast, fair way to rank the options in front of you, current yield is built for exactly that.

What current yield leaves out

For all its convenience, current yield tells only half the story of a bond's return, and using it well means knowing which half is missing. It counts the coupon income, but it says nothing about what happens to your capital between now and maturity.

Every bond is redeemed at its face value when it matures. So if you buy at a premium, as in our example, you will gradually give back that extra you paid as the price drifts down to face value, a loss current yield never mentions, which means it flatters the return on a premium bond. Buy at a discount and the reverse happens: you gain as the price rises to face value, an upside current yield overlooks, so it understates the return on a discount bond. The measure that captures both the coupons and this movement of capital is yield to maturity, which our bond yield to maturity calculator computes, while our bond calculator shows how the price these yields rest on is built in the first place.

Questions people ask

What is current yield on a bond?

It is the bond's annual coupon income as a percentage of its current market price, calculated by dividing the annual coupon by the price. It measures the income return you get for what you pay today, and it shifts as the market price changes.

Does payment frequency change the current yield?

No. Frequency changes the size of each individual coupon payment, but the current yield always compares the full annual coupon to the market price. A semi-annual bond simply pays its annual coupon in two instalments, without altering the yield.

Why is the current yield below the coupon rate here?

Because the bond is trading at a premium, above its face value. You pay more than face value to collect the same coupon, so your income relative to your cost is lower than the coupon rate. A bond trading at a discount would show a current yield above its coupon rate.

What does current yield not account for?

It ignores the gain or loss on your capital as the bond's price moves to face value at maturity. It therefore overstates the return on a premium bond and understates it on a discount bond. Yield to maturity includes that movement and gives the fuller return.

References

The calculation of current yield as annual coupon divided by market price, its relationship to the coupon rate at a premium or discount, and its limits against yield to maturity follow Wall Street Prep and the corporate finance text by Brealey, Myers, and Allen below.

1. Wall Street Prep. Current Yield. wallstreetprep.com
2. Brealey, R. A., Myers, S. C., and Allen, F. Principles of Corporate Finance (bond valuation and yields). McGraw-Hill.