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Current yield vs yield to maturity

Published August 17, 2026

Current yield is the annual coupon divided by the price you pay. Yield to maturity is the one discount rate that makes every remaining payment add up to that price. A 5 percent coupon bond at $857.88 has a 5.83 percent current yield and a 7 percent yield to maturity.

	Current yield	Yield to maturity
Formula	Annual coupon / price.	The rate i that solves the bond price identity for the quoted price.
At par, 5 percent coupon	5.00 percent, because the price is $1,000.00.	5 percent, the same number. Par is the only price where they agree.
At a discount	5.83 percent on a price of $857.88.	7 percent. The extra is the $142.12 of face value the buyer collects at maturity.
At a premium	4.27 percent on a price of $1,171.69.	3 percent. The shortfall is the $171.69 of price that is never repaid.
What it counts	This year's coupon cash only.	Every remaining coupon, and the difference between price and face value.
When you would pick it	Sizing the cash a bond throws off this year, as a share of what you paid.	Comparing two bonds, or reading what the market is paying for this one.

Three rates on one bond

The coupon rate is the annual coupon divided by face value. It is fixed when the bond is issued and never changes. Current yield is the same coupon divided by the price a buyer pays. Yield to maturity is the discount rate in the price formula.

On a $1,000.00 bond paying a 5 percent coupon twice a year for 10 years, priced at par, all three read 5 percent. That is the identity check: when the market rate equals the coupon rate, the price is face value, and current yield equals both.

When the market wants 7 percent, the price falls to $857.88. Current yield rises to 5.83 percent, because the same two $25.00 coupons a year now cost less to buy. Yield to maturity is 7 percent. The 1.17 point gap is the $142.12 of face value the buyer collects at maturity, which current yield says nothing about.

When the market wants 3 percent, the price rises to $1,171.69. Current yield falls to 4.27 percent. Yield to maturity is 3 percent. A buyer at this price also takes a known loss at maturity, when the bond repays $1,000.00 rather than the $1,171.69 they paid.

How bond pricing works is the long form, with the bond price calculator under the answer. A bond's yield in the United States is quoted as a nominal annual rate in step with how the coupons arrive.

Do not read the coupon as the return

The coupon rate equals the return only when the price equals face value. The premium bond pays a 5 percent coupon, hands its buyer 4.27 percent in cash on the price they actually paid, and still earns them only 3 percent, because $171.69 of the $1,171.69 they paid is never coming back.

The error runs the other way on a discount bond, where the coupon rate understates what a buyer earns. Yield to maturity is the measure that puts two bonds on the same footing. This is educational material, not financial advice.

Worked examples

A bond priced at par

A $1,000.00 bond pays a 5 percent coupon in two payments a year and matures in 10 years. Bonds of the same risk and maturity are yielding 5 percent. What is it worth?

Work out the cash coupon, which is face value times the coupon rate: $1000 \times 0.05 = 50$ a year, paid as two coupons of $25.00.
Set the period rate and the number of periods: $i = 0.05/2 = 0.025$ and $n = 10 \times 2 = 20$ .
Discount the 20 coupons: $25 \times \frac{1 - 1.025^{-20}}{0.025} = 25 \times 15.589162 = 389.73$ .
Discount the face value: $1000 \times 1.025^{-20} = 1000 \times 0.610271 = 610.27$ .
Add the two present values: $389.73 + 610.27 = 1000.00$ .
Current yield is the annual coupon over the price: $50 / 1000 = 0.05$ , which is 5.00 percent.

The bond is worth $1,000.00, exactly its face value, so it trades at par. The premium or discount is $0.00. The current yield is 5.00 percent, the same as the coupon rate, and on a bond that pays a coupon at all, par is the only price where those two agree.

The same bond when the market wants 7 percent

Nothing about the bond changes. Rates move, and buyers of comparable bonds now want 7 percent. What happens to the price?

The coupon is untouched at $25.00 twice a year, because the coupon rate is fixed against face value.
Only the discount rate moves: $i = 0.07/2 = 0.035$ , with $n = 20$ as before.
Discount the coupons: $25 \times \frac{1 - 1.035^{-20}}{0.035} = 25 \times 14.212403 = 355.31$ .
Discount the face value: $1000 \times 1.035^{-20} = 1000 \times 0.502566 = 502.57$ .
Add them: $355.31 + 502.57 = 857.88$ .
Measure the gap against face value: $1000 - 857.88 = 142.12$ .
Current yield: $50 / 857.88 = 0.0583$ , or 5.83 percent.

The price falls to $857.88. The bond changes hands for 142.12 less than the $1,000.00 it repays at maturity, which is what trading at a discount means. The current yield rises to 5.83 percent, because the same $25.00 coupons now cost less to buy.

The same bond when the market wants 3 percent

Same bond once more, but this time buyers of comparable bonds will accept 3 percent. What is it worth now?

The coupon is unchanged again at $25.00 twice a year.
$i = 0.03/2 = 0.015$ and $n = 20$ .
Discount the coupons: $25 \times \frac{1 - 1.015^{-20}}{0.015} = 25 \times 17.168639 = 429.22$ .
Discount the face value: $1000 \times 1.015^{-20} = 1000 \times 0.742470 = 742.47$ .
Add them: $429.22 + 742.47 = 1171.69$ .
The gap against face value: $1171.69 - 1000 = 171.69$ .
Current yield: $50 / 1171.69 = 0.0427$ , or 4.27 percent.

The price rises to $1,171.69, a premium of $171.69 over face value. The current yield falls to 4.27 percent, because the same $25.00 coupons cost more to buy. A buyer at this price also takes a known loss at maturity, when the bond repays $1,000.00 rather than the $1,171.69 they paid for it.

Common questions

Why is current yield below YTM on a discount bond?

Because current yield counts the coupons and stops. A buyer of the $857.88 bond also collects $1,000.00 at maturity, a $142.12 gain that current yield ignores and that yield to maturity spreads across the remaining years.

Is yield to maturity a promised return?

It is the return if every coupon is paid, the bond is held to maturity, and each coupon is reinvested at that same yield. Miss any of those and the realised return moves. It is still the right number for comparing two bonds on the day you buy.

Keep reading

This page is educational material, not financial advice. The figures come from the formula shown and assume the inputs you enter hold for the whole term. Your own rate, fees, taxes and timing will differ, so treat the output as arithmetic to check a decision against, not as a recommendation.