Bond yield is the amount of return an investor realizes on a particular bond. The current yield equals annual earnings of the bond divided by its clean market price.
Importance of Bond Yield
Bond yields are also a measure of the profit made from your bond investment. This is the reason bond yields are a sound indicator of ‘how strong the stock market is and the interest amount in US Dollar’.
Current Bond Yield = Annual Interest Payment / Clean Price
If you bought a bond having a face value of $100 that is selling at $90 and a coupon rate of 5%, the calculation would look like this:
Annual Interest Payment = 100 × 5% = 5
Current Bond Yield = Annual Interest Payment / Bond's Current Clean Price = 5 / 90 = 5.5%