What Is the Connection Between Current Yield and Yield to Maturity?

Current Yield refers to the income generated by interest income, also known as direct yield. It is usually paid twice a year. It can measure the ratio of cash income obtained in a certain period of the bond compared to the bond price. Most of the income generated by bonds.

Current yield

The current yield is the annual interest rate of the bond divided by the current market price of the bond. It did not consider

1,

At a nominal value of 1,000 yuan, the market interest rate at that time was 7%, and the annual coupon rate of the bond was 7%, and the interest was paid once a year. The bond is 3 years from the maturity date and the market interest rate is 8%. If the market interest rate remains unchanged until the maturity date, ask the current yield of the bond at 3, 2 and 1 year from the maturity date. It should be noted here that although the amount of interest paid at the end of each year is 70 yuan, as the maturity date approaches, the bond price is constantly approaching the face value, so the current yield ic is continuously decreasing and gradually approaches the coupon rate.

If there are still 3 years to mature, the bond price = 70 / (1 + 8%) + 70 / (1 + 8%) ^ 2 + 1070 / (1 + 8%) ^ 3 = 974.23 yuan i _c = 70 / 974.23 = 7.19%

If there are 2 years remaining, bond price = 70 / (1 + 8%) + 1070 / (1 + 8%) ^ 2 = 982.17i _c = 70 / 982.17 = 7.12%

If there is still one year to mature, the bond price = 1070 / (1 + 8%) = 990.74 i _c = 70 / 990.74 = 7.07%