Other Yield Measures and Conventions
CYt = Annual coupont / Bond pricet
The current yield is a crude measure of return because it focuses solely on interest income, ignoring the frequency of coupon payments, interest on interest (time value of money), and accrued interest. In addition to collecting and reinvesting coupon payments, the investor has a gain if the bond is purchased at a discount and is redeemed at par value. The investor has a loss if the bond is purchased at a premium and is redeemed at par value.
Bonds with Embedded Options
The yield-to-call is calculated by modifying the general formula for calculating yield-to-maturity.
where
- PV = the price of the bond
- PMT = coupon payment per period
- Call price = price at which a bond can be called on a given date
- r = yield per period or market discount rate
- N = number of evenly spaced periods to the date when a bond can be called at the call price
