Current Yield and Simple Yield to Maturity
Definition
The current yield of a bond is the coupon rate of the bond as a proportion of its clean price per 100. This is the same as the simple rate of return arising from the coupons of a bond. Current yield does not take into account either principal gain or loss, or time value of money.
The simple yield to maturity is the coupon rate plus the principal gain or loss amortised over the time to maturity, as a proportion of the clean price per 100. The simple yield to maturity can vary slightly according to which bond basis convention is used.
How are they used?
Current yield is useful as a measure of current income – hence the name. For example, a private investor who buys a long-term bond may be ...
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