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Current Yield: A Comprehensive Guide to Its Legal Definition and Implications
Definition & meaning
Current yield refers to the annual income generated by a security, particularly a bond, expressed as a percentage of its current market price. It is calculated by dividing the annual interest payment by the security's current market value. For instance, if a bond is priced at $1,000 and pays $100 in annual interest, its current yield would be 10%. This metric helps investors assess the return on their investment based on the income received relative to the price they would pay for the security.
Table of content
Legal use & context
Current yield is commonly used in the context of investment and finance law. It is particularly relevant for individuals and entities investing in bonds and other fixed-income securities. Understanding current yield can help investors make informed decisions regarding their investment portfolios. Legal professionals may assist clients in interpreting yield calculations and understanding their implications for investment strategies.
Key legal elements
Real-world examples
Here are a couple of examples of abatement:
For example, if an investor purchases a bond for $1,200 that pays $120 in annual interest, the current yield would be calculated as follows:
Current yield = Annual interest / Current market price
Current yield = $120 / $1,200 = 0.10 or 10%
(hypothetical example)
Comparison with related terms
Term
Definition
Difference
Yield to Maturity
The total return anticipated on a bond if held until it matures.
Current yield only considers annual income, while yield to maturity accounts for total returns over the life of the bond.
Coupon Rate
The annual interest rate paid by bond issuers to bondholders.
Coupon rate is fixed, whereas current yield varies with market price.
Common misunderstandings
What to do if this term applies to you
If you are considering investing in bonds or other securities, understanding current yield is essential. You can calculate it using the formula provided above. For personalized assistance, consider consulting a financial advisor or using US Legal Forms' templates to help manage your investment documentation.
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