Current Yield
Chapters in this video
- 0:00 Current yield ignores the future completely
- 0:56 Introducing Iris: the formula for bonds and stocks
- 2:42 Premium bond: current yield below coupon rate
- 3:23 Discount bond: current yield above coupon rate
- 3:57 The seesaw effect: price and yield move inversely
- 4:45 Current yield vs yield to maturity ranking
- 6:10 Rapid-fire exam recap
What this video covers
- Why current yield measures income return only and completely ignores capital gains, losses, and maturity payouts
- How to calculate current yield for both bonds (annual coupon divided by current market price) and stocks (annual dividend divided by current stock price)
- The exam trap of assuming current yield is bond-only, and why the same logic and denominator apply to stocks
- Why premium bonds produce current yield below the coupon rate, and discount bonds produce current yield above the coupon rate
- The seesaw effect: why current yield and market price move inversely when the coupon payment stays fixed
- What yield to maturity (YTM) adds to current yield, and why YTM exceeds current yield for discount bonds but trails it for premium bonds
- The exact yield ranking for discount bonds (coupon rate less than current yield less than YTM) and how it fully reverses for premium bonds
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