As a business owner, you are always looking for ways to improve your bottom line. One way to do this is to invest in assets that will generate income. When you are considering an investment, one of the key indicators that you will look at is the current yield. In this blog post, we will explain what current yield is and how it relates to financial analysis.
Current Yield Defined
Current yield is a ratio that measures the annual income from an investment divided by the current market price of the investment. The current market price is the price that you would pay for the asset today.
For example, let’s say that you are considering investing in a bond with a par value of $1,000 that pays interest semi-annually. The bond has a coupon rate of 5% and matures in 10 years. The current market price of the bond is $950. The current yield on the bond would be:
Annual interest income/$950 = 0.0526 or 5.26%