EDUCBA

EDUCBA

MENUMENU
  • Free Tutorials
  • Free Courses
  • Certification Courses
  • 250+ Courses All in One Bundle
  • Login

Current Yield of Bond Formula

By Madhuri ThakurMadhuri Thakur

Home » Finance » Blog » Finance Formula » Current Yield of Bond Formula

Current Yield of Bond Formula

Current Yield of Bond Formula (Table of Contents)

  • Formula
  • Examples
  • Calculator

What is Current Yield of a Bond Formula?

The term “current yield of a bond” refers to the rate of return expected currently from the bond based on its annual coupon payment and its current market price. As such, it is the rate of return expected from the bond in the next year. The formula for current yield is very simple and can be derived by dividing the annual coupon payment expected in the next year by the current market price of the bond which is then expressed in percentage. Mathematically, it is represented as,

Start Your Free Investment Banking Course

Download Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

Current Yield = Annual Coupon Payment / Current Market Price of Bond

Examples of Current Yield of Bond Formula (With Excel Template)

Let’s take an example to understand the calculation of the Current Yield of Bond in a better manner.

You can download this Current Yield of Bond Formula Excel Template here – Current Yield of Bond Formula Excel Template

Current Yield Formula – Example #1

Let us take the example of a bond that pays a coupon rate of 5% and is currently trading at a discount price of $950. Calculate the current yield of the bond.

Current Yield Formula Example 1-1

Solution:

Annual Coupon Payment is calculated using the formula given below

Annual Coupon Payment = Coupon Rate * Par Value

Annual Coupon Payment

  • Annual Coupon Payment = 5% * $1,000
  • Annual Coupon Payment = $50

Current Yield of a Bond can be calculated using the formula given below

Current Yield = Annual Coupon Payment / Current Market Price of Bond

Popular Course in this category
Sale
All in One Financial Analyst Bundle - 250+ Courses, 40+ Projects250+ Online Courses | 1000+ Hours | Verifiable Certificates | Lifetime Access
4.9 (3,296 ratings)
Course Price

View Course

Related Courses
Finance for Non Finance Managers Course (7 Courses)Investment Banking Course (123 Courses, 25+ Projects)Financial Modeling Course (5 Courses, 14 Projects)

Current Yield of a bond Formula Example 1-3

  • Current Yield = $50 / $950
  • Current Yield = 5.26%

Therefore, the current yield of the bond is 5.26%.

Current Yield Formula – Example #2

Let us take the example of a 10-year coupon paying a bond that pays a coupon rate of 5%. Calculate the current yield of the bond in the following three cases:

  1. Bond is trading at a discounted price of $990.
  2. Bond is trading at par.
  3. Bond is trading at a premium price of $1,010.

Current Yield Formula Example 2-1

Solution:

Annual Coupon Payment is calculated using the formula given below

Annual Coupon Payment = Coupon Rate * Par Value

Annual Coupon Payment

  • Annual Coupon Payment = 6% * $1,000
  • Annual Coupon Payment = $60

1. Bond is trading at a discounted price of $990.

Current Yield of a Bond can be calculated using the formula given below

Current Yield = Annual Coupon Payment / Current Market Price of Bond

Current Yield Formula Example 2-3

  • Current Yield = $60 / $990
  • Current Yield = 6.06%

Therefore, the current yield of the bond is 6.06%.

2. Bond is trading at par.

Current Yield of a Bond can be calculated using the formula given below

Current Yield = Annual Coupon Payment / Current Market Price of Bond

Current Yield Formula Example 2-4

  • Current Yield = $60 / $1,000
  • Current Yield = 6.00%

Therefore, the current yield of the bond is 6.00%.

3. Bond is trading at a premium price of $1,010.

Current Yield of a Bond can be calculated using the formula given below

Current Yield = Annual Coupon Payment / Current Market Price of Bond

Current Yield Formula Example 2-5

  • Current Yield = $60 / $1,010
  • Current Yield = 5.94%

Therefore, the current yield of the bond is 5.94%.

Current Yield Formula – Example #3

Let us take the example of Stuart who is considering to invest in one of the two bonds. Bond 1 pays a coupon rate of 7% and it is currently trading at $920, while Bond 2 pays a coupon rate of 8% and it is currently trading at $1,100. Help Stuart in deciding which is a better investment option.

Example of Stuart

Solution:

Annual Coupon Payment is calculated using the formula given below

Annual Coupon Payment = Coupon Rate * Par Value

Annual Coupon Payment Example 3-2

For Bond 1

  • Annual Coupon Payment = 7% * $1,000
  • Annual Coupon Payment = $70

For Bond 2

  • Annual Coupon Payment = 8% * $1,000
  • Annual Coupon Payment = $80

Current Yield of a Bond can be calculated using the formula given below

Current Yield = Annual Coupon Payment / Current Market Price of Bond

Current Yield of a Bond Formula Example 3-3

For Bond 1

  • Current Yield = $70 / $920
  • Current Yield = 7.61%

For Bond 2

  • Current Yield = $80 / $1000
  • Current Yield = 7.27%

For the next one year, Bond 1 seems to be a better investment option given its relatively better current yield.

Explanation

The formula for the current yield of a bond can be derived by using the following steps:

Step 1: Firstly, determine the annual cash flow to be generated by the bond based on its coupon rate, par value, and frequency of payment.

Step 2: Next, determine the current market price of the bond based on its own coupon rate vis-à-vis the ongoing yield offered by other bonds in the market. Based on the fact that whether its coupon rate is higher, equal or lower than the prevailing market yield, the bond will be traded at premium, par or discount respectively.

Step 3: Finally, the formula for a current yield of the bond can be derived by dividing the expected annual coupon payment (step 1) by its current market price (step 2) and expressed in percentage as shown below.

Current Yield = Annual Coupon Payment / Current Market Price of Bond * 100%

Relevance and Use of Current Yield of Bond Formula

From the perspective of a bond investor, it is important to understand the concept of current yield because it helps in the assessment of the expected rate of return from a bond currently. Typically, the stated coupon rate of a bond remains the same until its maturity, however, the expected rate of return of the investors fluctuates during the period based on the ongoing market trend. As such, bond investors set the bond prices higher or lower until its current yield is equal to that of other bonds with a similar level of risk.

Current Yield Formula Calculator

You can use the following Current Yield Calculator

Annual Coupon Payment
Current Market Price of Bond
Current Yield
 

Current Yield =
Annual Coupon Payment =
Current Market Price of Bond
0 = 0
0

Recommended Articles

This has been a guide to Current Yield Formula. Here we discuss How to Calculate Current Yield of a bond along with practical examples. We also provide a Current Yield Calculator with downloadable excel template. You may also look at the following articles to learn more –

  1. Examples of Bond Pricing Formula
  2. Calculator For Current Assets Formula
  3. What is Rate of Return Formula?
  4. Guide to Bond Formula with Examples

All in One Financial Analyst Bundle (250+ Courses, 40+ Projects)

250+ Online Courses

1000+ Hours

Verifiable Certificates

Lifetime Access

Learn More

0 Shares
Share
Tweet
Share
Primary Sidebar
Finance Blog
  • Finance Formula
    • Fixed Asset Turnover Ratio Formula
    • Deferred Annuity Formula
    • Capital Investment Formula
    • Ratio Analysis Formula
    • Loss Ratio Formula
    • Benefit-Cost Ratio Formula
    • Probability Distribution Formula
    • Cash Conversion Cycle Formula
    • Accrued Income
    • DCF Excel summary
    • Price to Earning Ratio Formula
    • Current Yield of Bond Formula
    • Earnings Per Share Formula
    • Manufacturing Overhead Formula
    • FCFF Formula
    • Predetermined Overhead Rate Formula
    • Times Interest Earned Ratio Formula
    • Bank Efficiency Ratio Formula
    • Capital Expenditure Formula
    • Expense Ratio Formula
    • WACC Formula
    • Activity Ratio Formula
    • Standard Error Formula
    • Forward Rate Formula
    • Gearing Formula
    • Prime Cost Formula
    • Productivity Formula
    • t-Test Formula
    • Risk Free Rate Formula
    • Tax Shield Formula
    • Sortino Ratio
    • Reserve Ratio Formula
    • Bond Formula
    • Annualized Rate of Return Formula
    • Conditional Probability Formula
    • Financing Formula
    • Future Value of an Annuity Formula
    • For Profit vs Non Profit
    • Deadweight Loss Formula
    • Inflation Formula
    • Amortized Loan Formula
    • Horizontal Analysis Formula
    • Marginal Utility Formula
    • Kurtosis Formula
    • Macaulay Duration Formula
    • Multiplier Formula
    • Modified Duration Formula
    • Operating Leverage Formula
    • Payout Ratio Formula
    • Statistics Formula
    • Sampling Error Formula
    • Trend Analysis Formula
    • Taylor Rule Formula
    • Put Call Parity Formula
    • Annual Return Formula
    • Discount Rate Formula
    • Cash Flow Formula
    • Dilution Formula
    • Attrition Formula
    • Operating Expense Formula
    • Interpolation Formula
    • Annuity Due Formula
    • Bond Yield Formula
    • Turnover Ratio Formula
    • Efficiency Formula
    • Revenue Per Employee
    • Regression Line Formula
    • Yield to Maturity
    • Pearson Correlation Coefficient Formula
    • Accounting Formula
    • Fiscal Deficit Formula
    • Tax Multiplier Formula
    • Efficiency Ratio Formula
    • Demand Elasticity Formula
    • Gross Margin Formula
    • Elasticity Formula
    • Marginal Benefit Formula
    • Depreciation Formula
    • Cost-Benefit Analysis Formula
    • Percentage Change Formula
    • Levered Beta Formula
    • Shares Outstanding Formula
    • Capital Gain Formula
    • Convexity Formula
    • Gross Income Formula
    • Net Exports Formula
    • Producer Surplus Formula
    • Accounting Rate of Return Formula
    • Net Cash Flow Formula
    • Labor Force Participation Rate Formula
    • Moving Average Formula
    • Net Worth Formula
    • Accounting Profit Formula
    • Disposable Income Formula
    • Discount Formula
    • Average Variable Cost Formula
    • Total Variable Cost Formula
    • Product Cost Formula
    • Marginal Product Formula
    • Break-Even Sales Formula
    • Return on Sales Formula
    • Cost of Goods Manufactured Formula
    • Average Fixed Cost Formula
    • Stock Turnover Ratio Formula
    • Operating Ratio Formula
    • Equity Ratio Formula
    • Net Present Value Formula
    • Aggregate Demand Formula
    • Volatility Formula
    • Marginal Product of Labor Formula
    • Z Test Statistics Formula
    • Standard Cost Formula
    • Velocity of Money Formula
    • Invested Capital Formula
    • Unlevered Beta Formula
    • Bank Reconciliation Formula
    • Portfolio Return Formula
    • Central Tendency Formula
    • Accumulated Depreciation Formula
    • Intrinsic Value Formula
    • Decile Formula
    • Vector Cross Product Formula
    • Effective Annual Rate Formula
    • CAGR Formula
    • Mode Formula
    • Arithmetic Mean Formula
    • Real GDP Formula
    • Gini Coefficient Formula
    • Expected Value Formula
    • Price Elasticity of Supply Formula
    • Net Operating Income Formula
    • Profit Percentage Formula
    • GDP Per Capita Formula
    • Altman Z Score
    • Quartile Deviation Formula
    • Return on Capital Employed Formula
    • Consumer Price Index Formula
    • Economic Profit Formula
    • Market Share Formula
    • Real Interest Rate Formula
    • Income Elasticity of Demand Formula
    • Income From Operations Formula
    • Indexation Formula
    • Sales Formula
    • Money Multiplier Formula
    • GDP Deflator Formula
    • Residual Income Formula
    • Effective Interest Rate Formula
    • Coupon Bond Formula
    • Current Account Formula
    • Total Cost Formula
    • Total Expense Ratio Formula
    • Net Sales Formula
    • Percentage Decrease Formula
    • Uncertainty Formula
    • Nominal GDP Formula
    • Effect Size Formula
    • Delta Formula
    • Cost of Sales Formula
    • Fixed Cost Formula
    • Unemployment Rate Formula
    • Present Value of Annuity Formula
    • Compounding Formula
    • Geometric Distribution Formula
    • National Income Formula
    • Accounts Receivables Turnover Formula
    • Integer Formula
    • Ending Inventory Formula
    • Owner's Equity Formula
    • Capacity Utilization Rate Formula
    • Interest Formula
    • Nominal Interest Rate Formula
    • Risk Premium Formula
    • Interest Coverage Ratio Formula
    • Gross Profit Margin Formula
    • Diluted EPS Formula
    • Return On Average Equity Formula
    • Return on Average Assets Formula
    • Working Capital Formula
    • Revenue Per Employee Ratio Formula
    • Capital Employed Formula
    • Rule of 72 Formula
    • Inventory Turnover Ratio Formula
    • Preferred Dividend Formula
    • Retention Ratio Formula
    • Present Value Factor Formula
    • Equity Multiplier Formula
    • Continuous Compounding Formula
    • Return on Assets (ROA) Formula
    • Portfolio Variance Formula
    • Weighted Average Formula
    • Net Working Capital Formula
    • Tax Equivalent Yield Formula
    • Poisson Distribution Formula
    • Current Ratio Formula
    • Debt Ratio Formula
    • Quick Ratio Formula
    • Payback Period Formula
    • Marginal Cost Formula
    • Debt to Income Ratio Formula
    • Book Value Per Share Formula
    • Asset Turnover Ratio Formula
    • Perpetuity Formula
    • Bid-Ask Spread Formula
    • Price to Book Value Formula
    • Capital Gains Yield Formula
    • Net Profit Margin Formula
    • DuPont Formula
    • Bond Pricing Formula
    • Binomial Distribution Formula
    • Sustainable Growth Rate Formula
    • Average Collection Period Formula
    • Net Income Formula
    • CAPM Formula
    • Cost of Goods Sold Formula
    • Economic Order Quantity (EOQ) Formula
    • Amortization Formula
    • Enterprise Value Formula
    • Beta Formula
    • Cost of Equity Formula
    • Rate of Return Formula
    • Revenue Formula
    • Markup Price Formula
    • Cash Flow from Operations Formula
    • Simple Interest Rate Formula
    • Consumer Surplus Formula
    • Asset to Sales Ratio Formula
    • Debt Service Coverage Ratio Formula
    • Capitalization Rate Formula
    • Cost of Debt Formula
    • Straight Line Depreciation Formula
    • Variable Costing Formula
    • Return on Invested Capital Formula
    • Profitability Index Formula
    • Expected Return Formula
    • Cost of Capital Formula
    • Price Index Formula
    • Average Total Cost Formula
    • Discount Factor Formula
    • Price Elasticity Formula
    • Profitability Ratios Formula
    • Financial Leverage Formula
    • Contribution Margin Formula
    • Time Value of Money Formula
    • Balance Sheet Formula
    • Opportunity Cost Formula
    • Current Assets Formula
    • Operating Cycle Formula
    • Operating Margin Formula
    • Bond Equivalent Yield Formula
    • Marginal Revenue Formula
    • Sales Revenue Formula
    • Net Debt Formula
    • Times Interest Earned Formula
    • Gordon Growth Model Formula
    • Required Rate of Return Formula
    • Break Even Analysis Formula
    • Inventory Formula
    • Marginal Propensity to Consume Formula
    • Debt to Asset Ratio Formula
    • Solvency Ratio Formula
    • Interest Expense Formula
    • Leverage Ratio Formula
    • Dividend Payout Ratio Formula
    • Operating Profit Margin Formula
    • PEG Ratio Formula
    • Net Interest Margin Formula
    • Return on Equity (ROE) Formula
    • Overhead Ratio Formula
    • Future Value Formula
    • Days in Inventory Formula
    • Market Capitalization Formula
    • Sharpe Ratio Formula
    • Cash Ratio Formula
    • Retained Earnings Formula
    • Average Rate of Return Formula
    • Current Liabilities Formula
    • Equity Value Formula
    • Relative Risk Reduction Formula
    • Capital Adequacy Ratio Formula
    • Debtor Days Formula
    • DPMO Formula
    • Average Formula
    • Exponential Growth Formula
    • Net Realizable Value Formula
    • Range Formula
    • Shareholders' Equity Formula
    • Sinking Fund Formula
    • Doubling Time Formula
    • Salvage Value Formula
    • Coupon Rate Formula
    • Simple Interest Formula
    • Correlation Formula
    • R - Squared Formula
    • MTBF Formula
    • Change in Net Working Capital Formula
    • Midrange Formula
    • Normal Distribution Formula
    • Mean Formula
    • Population Mean Formula
    • Median Formula
    • Central Limit Theorem Formula
    • Free Cash Flow Formula
    • Stockholder's Equity Formula
    • Acid-Test Ratio Formula
    • Percentile Rank Formula
    • Purchasing Power Parity Formula
    • Harmonic Mean Formula
    • Relative Standard Deviation Formula
    • T Distribution Formula
    • Normalization Formula
    • Operating Income Formula
    • Markup Percentage Formula
    • Relative Change Formula
    • Maturity Value Formula
    • Salary Formula
    • High Low Method
    • Income Statement Formula
    • Market to Book Ratio Formula
    • Dividends Per Share Formula
    • Daily Compound Interest Formula
    • Working Capital Turnover Ratio Formula
    • Weighted Mean Formula
    • Compounded Annual Growth Rate Formula
    • Regression Formula
    • Margin of Error Formula
    • Hypergeometric Distribution Formula
    • Standard Normal Distribution Formula
    • NOPAT Formula
    • Effective Tax Rate Formula
    • Degree of Operating Leverage Formula
    • Outliers Formula
    • Information Ratio Formula
    • Percent Error Formula
    • Hypothesis Testing Formula
    • Activity Based Costing Formula
    • Coverage Ratio Formula
    • Market Risk Premium Formula
    • Degree of Financial Leverage Formula
    • Absorption Costing Formula
    • Future Value of Annuity Due Formula
    • Internal Growth Rate Formula
    • F-Test Formula
    • Covariance Formula
    • Population Variance Formula
    • Coefficient of Determination Formula
    • Adjusted R Squared Formula
    • Compound Interest Formula
    • Gross Profit Formula
    • Accounting Equation Formula
    • Sample Size Formula
    • Sample Standard Deviation Formula
    • Quartile Formula
    • Variance Analysis Formula
    • Correlation Coefficient Formula
    • Z Score Formula
    • Variance Formula
    • Present Value Formula
    • Coefficient of Variation Formula
    • Net Asset Value Formula
    • Profit Margin Formula
    • Holding Period Return Formula
    • Capital Asset Pricing Model Formula
    • Present Value of Annuity Due Formula
    • Depreciation Expenses Formula
    • Annuity Formula
    • Taxable Income Formula
    • Profit Formula
    • Monthly Compound Interest Formula
    • Equity Formula
    • Return on Total Assets Formula
    • Alpha Formula
    • Debt to Equity Ratio Formula
    • EBITDA Formula
    • Accrued Interest Formula
    • Dividend Formula
    • Common Stock Formula
    • Mortgage Formula
    • Growth Rate Formula
    • Absolute Value Formula
  • Accounting fundamentals (614+)
  • Asset Management Tutorial (181+)
  • Banking (43+)
  • Corporate Finance Basics (248+)
  • Credit Research Fundamentals (6+)
  • Economics (44+)
  • Financial Modeling in Excel (13+)
  • Investment Banking Basics (114+)
  • Investment Banking Careers (26+)
  • Trading for dummies (67+)
  • valuation basics (27+)
Finance Blog Courses
  • Finance for Non Finance Managers Training Course
  • Investment Banking Online Course
  • Financial Modeling Certification
Footer
About Us
  • Blog
  • Who is EDUCBA?
  • Sign Up
  • Live Classes
  • Corporate Training
  • Certificate from Top Institutions
  • Contact Us
  • Verifiable Certificate
  • Reviews
  • Terms and Conditions
  • Privacy Policy
  •  
Apps
  • iPhone & iPad
  • Android
Resources
  • Free Courses
  • Investment Banking Jobs Offer
  • Finance Formula
  • All Tutorials
Certification Courses
  • All Courses
  • Financial Analyst All in One Bundle
  • Investment Banking Training
  • Financial Modeling Course
  • Equity Research Course
  • Private Equity Training Course
  • Business Valuation Course
  • Mergers and Acquisitions Course

© 2022 - EDUCBA. ALL RIGHTS RESERVED. THE CERTIFICATION NAMES ARE THE TRADEMARKS OF THEIR RESPECTIVE OWNERS.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

EDUCBA
Free Investment Banking Course

Corporate Valuation, Investment Banking, Accounting, CFA Calculator & others

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

Let’s Get Started

By signing up, you agree to our Terms of Use and Privacy Policy.

Loading . . .
Quiz
Question:

Answer:

Quiz Result
Total QuestionsCorrect AnswersWrong AnswersPercentage

Explore 1000+ varieties of Mock tests View more

EDUCBA Login

Forgot Password?

By signing up, you agree to our Terms of Use and Privacy Policy.

This website or its third-party tools use cookies, which are necessary to its functioning and required to achieve the purposes illustrated in the cookie policy. By closing this banner, scrolling this page, clicking a link or continuing to browse otherwise, you agree to our Privacy Policy

EDUCBA

Download Current Yield of Bond Formula Excel Template

EDUCBA

*Please provide your correct email id. Login details for this Free course will be emailed to you

By signing up, you agree to our Terms of Use and Privacy Policy.

Special Offer - All in One Financial Analyst Bundle (250+ Courses, 40+ Projects) Learn More