Sign up  |  Log in

Current Yield - What does it tell us?

Jerling Company’s 15-year, 9% semi-annual coupon bond is selling for $940. What is the bond’s current yield?

Answer is 9.57%

What does that represent. I know how to calculate it but what does that 9.57% mean? I get confused between all these rates/yield. YTM, BEY, Effective Yield. Current Yield wtf, how many ways can you value something.

Kick start your CFA® Program prep with Top Instructors you’ll love and a course that offers free updates until you pass – We’ve got you covered.

It incorporates the $60 at maturity

EDIT: if you buy at 940, you will get a coupon every 6 months PLUS $60 at maturity (1000 face value - 940 current market price)

if you hold the bond to maturity that is your rate of return (assuming you reinvest @ 9%)

> It incorporates the $60 at maturity

no

Current yield is current coupon divided by price. Completely ignores any future cash flows and involves no TVM calculations. It’s a simplistic and relatively worthless measure.

okay that makes sense, thanks guys

My mistake… current yield = annual pmt/current price

it’s coupon pmt/current price

Current yield is similar to IRR. Means the yield rate, whick makes the future value and coupons equal to the current market price.

tom18606 Wrote:
——————————————————-
> Current yield is similar to IRR. Means the yield
> rate, whick makes the future value and coupons
> equal to the current market price.

I thought current yield is simply current period returns as compared to current price…not concered with future CFs at all.

So, I am not positive about IRR explanation.

CY = coupon pymt/current price

Current Yield is a worthless measure. Don’t bang your head over it man, even the Schweser text says how limited the usefulness of the current yield is. It is a yield at a point in time from my understanding. The bond price will change at any point from now till maturity and so will the current yield. So I don’t know how useful that can be.

Feel free to add me on Facebook
http://www.facebook.com/classikh
‘08, ‘09, ‘11 - 3/3

“The current yield is the sum of the coupon payments received over the year divided by the flat price.”

(Institute 419)

Institute, CFA. 2016 CFA Level I Volume 5 Equity and Fixed Income. CFA Institute, 07/2015. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.

So why then is the calculation 2/95 for a “10-year, 2% semiannual coupon payment bond is priced at 95 per 100 of par value. Its current yield is 2.105%.”

(Institute 419)

Institute, CFA. 2016 CFA Level I Volume 5 Equity and Fixed Income. CFA Institute, 07/2015. VitalBook file.

The citation provided is a guideline. Please check each citation for accuracy before use.

Shouldn’t it be 4/95?

Coupon rates are always – always! – quoted as annual rates.

Simplify the complicated side; don't complify the simplicated side.

Financial Exam Help 123: The place to get help for the CFA® exams
http://financialexamhelp123.com/

Aha! I see thanks.