Describes the yield on a bond based on the coupon rate and the current market price of the bond (not on its face or par value).
Current yield is calculated by dividing the annual interest earned on a bond by its current market price. Where the coupon is partly dependent on Libor, future coupons are forecast by holding Libor unchanged from the most recent coupon rate.
For example, a £1,000 bond selling for £850 and paying an 8% coupon rate (or £80 per year) has a current yield of 9.41% (the quotient of £80 divided by £850). The coupon rate in this example is 8% (80/1,000).
Current Yield
Written by Rezaah Ahmad