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.
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.
"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.
Aha! I see thanks.