1. What is Current Yield?

The current yield is a measure of the annual income (coupon payments) an investment provides relative to its current market price. For government bonds like US Treasuries, it helps investors compare bonds with different prices and coupon rates.

2. How Does the Calculator Work?

The calculator uses the current yield formula:

Where:

• \( C \) — Annual coupon payment ($)
• \( P \) — Current market price of the bond ($)

Explanation: The formula calculates what percentage return an investor would earn from coupon payments alone based on the bond's current price.

3. Importance of Current Yield

Details: Current yield is important for income-focused investors as it shows the cash flow return from a bond investment. However, it doesn't account for price changes or reinvestment risk.

4. Using the Calculator

Tips: Enter the annual coupon payment in dollars and the current market price in dollars. Both values must be positive numbers.

5. Frequently Asked Questions (FAQ)

Q1: How is current yield different from yield to maturity?
A: Current yield only considers coupon payments, while yield to maturity accounts for all cash flows including price changes if held to maturity.

Q2: What are typical current yields for government bonds?
A: Current yields vary with interest rates. As of 2023, 10-year US Treasuries yield about 3-4%, but this changes with market conditions.

Q3: Why does current yield change?
A: Current yield changes as bond prices fluctuate in the secondary market. When prices rise, yields fall, and vice versa.

Q4: Is higher current yield always better?
A: Not necessarily. Higher yields often indicate higher risk. Government bonds typically offer lower yields than corporate bonds due to their safety.

Q5: Does current yield include inflation?
A: No, current yield is nominal. For real yield, subtract expected inflation from the nominal yield.