Bond Yields: Current Yield And YTM
two popular bond yield measures are the current yield and the yield to maturity. the current yield is the interest it pays annually divided by the bond's current price. this calculation tells investors what they will earn from buying the bond and holding it for one year. ? is thinking about buying a bond for $100 with a $10 annual coupon. she divides $10 by $100 to find its current yield is 10%. since bond prices constantly change due to market and economic conditions, ? may not really earn 10%. her actual return will depend on how long she holds the bond and its price when she sells it. ? might sell the bond after two years for $75. while she earns $20 during the two years she held it, since she sold it for $25 less than she bought it for, she actually lost $5. the current yield approximates what she might earn, which helps her decide whether to invest. since she wants to buy a bond, ? also needs to consider yield to maturity, ytm, which is the anticipated return if she holds the bond until it matures, that is, if she doesn't sell before the maturity date of the bond. ytm is expressed as an annual rate and it accounts for what all of a bond's future coupon payments are worth today after present value. ? needs to know the bond's market price, par value, coupon interest rate and time to maturity to calculate ytm. she plugs these numbers into a computer program that assumes all coupon payments are reinvested at the same rate as the bond's current yield of 10%. ytm is a complex calculation but it gives ? a better idea about potential returns and lets her compare what she could earn from bonds with different maturities and coupons.
- current yield・・・直利
- yield to maturity（ytm）・・・満期利回り
- present value・・・現在価値
- par value・・・額面価格