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Simple English definitions for legal terms
current yield
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A quick definition of current yield:
Current yield is a way to measure how much money you can make from an investment. It's usually used for bonds, which are like loans that you can buy from a company or government. The current yield is the amount of interest you'll get each year, divided by how much you paid for the bond. So if you paid $100 for a bond that pays $5 in interest each year, your current yield would be 5%. It's a way to see how much money you can make from your investment, compared to how much you paid for it.
A more thorough explanation:
Definition: Current yield is a measure of profit expressed as a percentage of the investment. It is the annual interest paid on a security, such as a bond, divided by the security's current market price.
Examples:
- A bond with a face value of $1,000 and an annual interest payment of $50 has a coupon yield of 5% ($50/$1,000).
- If the same bond is currently trading at $900, its current yield would be 5.56% ($50/$900).
These examples illustrate how current yield is calculated based on the current market price of a security, rather than its face value or nominal yield.