Current yield
Current yield relates coupon income to the price paid for a bond. It differs from the coupon rate, which uses nominal value, and from yield to maturity, which also reflects payment timing and the gain or loss on redemption under the relevant assumptions. Specify whether a quoted price includes accrued interest and use a consistent basis. Coupon income is not a guarantee that it will be paid, while a percentage yield is not the currency income amount. Assess credit, liquidity, market-price and reinvestment risks separately.
Worked example
A bond has annual coupon$6 per$100 nominal and market price$80 on the stated clean-price basis. Current yield is 6/80=7.5%;coupon rate is 6%. The$6 income amount is not a 6%current yield on an$80 investment.
Common mistake
Dividing by nominal value while calling the result current yield, or treating coupon income as the full return including redemption effects.
Where it appears in your exams
| Qualification | Exam | Relationship | Period |
|---|---|---|---|
| ACCA | FM | Supporting | September 2026–June 2027 |