Transparent method
The formula
Worked example
Example inputs
How to interpret the result
Current yield only measures one year's income against today's price. It says nothing about what happens to that price by the time the bond matures, which is exactly what yield to maturity is built to capture instead. A bond bought at a steep discount can show a modest current yield while its total return to maturity runs considerably higher once the eventual price recovery to face value is included.
Before you rely on it
What to check
Use current yield for a quick income snapshot only, and reach for yield to maturity when the actual decision involves holding to maturity or comparing total return.
The common error
Where people go wrong with bond current yield calculator
Treating current yield as a complete substitute for total return. It ignores the gain or loss built into the gap between today's purchase price and the bond's eventual maturity value.
Sensitivity evidence
How market price changes the estimated yield to maturity
| Market price | Estimated yield to maturity | Current yield |
|---|---|---|
| $760 | 9.3% | 6.6% |
| $855 | 7.4% | 5.8% |
| $950worked example | 5.8% | 5.3% |
| $1,045 | 4.3% | 4.8% |
| $1,140 | 3.0% | 4.4% |
Every input, tested
Which input moves the estimated yield to maturity most
| Input | Tested from | To | Estimated yield to maturity at each end | Swing |
|---|---|---|---|---|
| Face value | $900 | $1,100 | 4.2% to 7.3% | 3.1% (54%) |
| Market price | $855 | $1,045 | 7.4% to 4.3% | 3.1% (54%) |
| Annual coupon rate | 4.0% | 6.0% | 4.8% to 6.8% | 2.1% (36%) |
| Years to maturity | 6.0 years | 10.0 years | 6.0% to 5.7% | 0.343% (5.9%) |
| Payments per year | 1 | 3 | 5.8% to 5.8% | 0.012% (0.2%) |
Two variables at once
Estimated yield to maturity by market price and face value
| Market price \ Face value | $800 | $1,000 | $1,200 |
|---|---|---|---|
| $760 | 5.8% | 9.3% | 12.3% |
| $855 | 4.0% | 7.4% | 10.4% |
| $950 | 2.4% | 5.8% | 8.7% |
| $1,045 | 1.0% | 4.3% | 7.1% |
| $1,140 | -0.255% | 3.0% | 5.8% |
Step by step
The worked example, input by input
| Input | Value used |
|---|---|
| Market price | $950 |
| Face value | $1,000 |
| Annual coupon rate | 5.0% |
| Years to maturity | 8.0 years |
| Payments per year | 2 |
| Estimated yield to maturity | 5.8% |
| Current yield | 5.3% |
Where the inputs come from
Market price is what the bond trades for now, face value and coupon rate give the annual coupon dollars, and years to maturity and payments per year are needed only for the fuller yield-to-maturity output. Use the clean price from a quote. Current yield divides the annual coupon by the price, so a bond bought at a discount has a higher current yield than its coupon rate and one at a premium has a lower one.
Using the estimated yield to maturity in a real decision
Income-focused investors use it to compare how much cash a bond pays for its price, and it is a quick check before looking at the fuller yield.
When the result stops applying
Current yield ignores the change in price to par, so it can mislead for bonds far from par or close to maturity. It also ignores compounding and reinvestment. A bond with a high current yield may carry higher risk or a large premium that is lost at maturity. It should not be used alone to compare bonds.
What to compare it with
See the full return on the yield to maturity calculator, and price sensitivity on the duration page. The bond price and yield to call calculators handle other cases. For funds, the SEC yield is a standardized comparison.
People also ask
Frequently asked questions
How is current yield calculated?
Divide the bond's annual coupon payment by its current market price. A $50 coupon on a $950 price gives 5.26%.
Why is current yield different from the coupon rate?
The coupon rate is based on face value, while current yield is based on the price you pay, so a discount raises it and a premium lowers it.
Is a higher current yield better?
Not necessarily. It may reflect a premium price you will lose at maturity or higher credit risk, so compare with yield to maturity.