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The current yield, interest yield, income yield, flat yield or running yield is a financial term used in reference to bonds and other fixed-interest securities such as gilts. It is the ratio of the annual interest payment and the bond's current price.## References

The current yield only therefore refers to the yield of the bond at the current moment. It does not reflect the total return over the life of the bond. In particular, it takes no account of reinvestment risk (the uncertainty about the rate at which future cashflows can be reinvested) or the fact that bonds usually mature at par value, which can be an important component of a bond's return.

Relationship between yield to maturity and coupon rate.

The concept of current yield is closely related to other bond concepts, including yield to maturity, and coupon yield. When a bond sells at;

- discount: YTM > current yield > coupon yield

- a premium: coupon yield > current yield > YTM

- par: YTM = current yield = coupon yield.

Current Yield = Total Yield - Capital Gains Yield

The current yield is the annual payment divided by the price. Algebraically expressed as Y = R/P, where Y is yield, R is the annual payment, and P represents price. This creation shows the fine line between high and low returns over more than one period. A high yield will produce a relative payment and a low yield will do the same. When the yields of several periods are compared a higher yield will show a higher payment with less risk associated. This equates to investors expecting a higher yield over a length of investing. The possibility of market risks are ignored.

- Current Yield at investopedia.com

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Last updated on Wednesday July 30, 2008 at 11:16:22 PDT (GMT -0700)

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This article is licensed under the GNU Free Documentation License.

Last updated on Wednesday July 30, 2008 at 11:16:22 PDT (GMT -0700)

View this article at Wikipedia.org - Edit this article at Wikipedia.org - Donate to the Wikimedia Foundation

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