Current yield is a fundamental concept in finance that provides investors with a simple yet essential measure of a fixed-income investment's return. It is typically expressed as a percentage and represents the annual income generated by an investment in relation to its current market price. This yield is a crucial metric for investors looking to assess the income potential of bonds, preferred stocks, or other fixed-income securities.

To calculate the current yield, you divide the annual interest or dividend income generated by the investment by its current market price and then multiply the result by 100 to express it as a percentage. The formula for current yield can be summarized as follows:

Current Yield (%) = (Annual Income / Current Market Price) * 100

For example, if you own a bond with a face value of $1,000 that pays an annual interest of $50, and its current market price is $900, the current yield would be:

Current Yield = ($50 / $900) * 100 = 5.56%

Current yield is a useful tool for comparing different fixed-income investments and understanding their relative income potential. However, it's important to note that it provides a simplified view of an investment's return and does not take into account other factors like potential capital gains or losses, the time value of money, or changes in interest rates. For a more comprehensive assessment of an investment's overall performance, investors often use other metrics, such as yield to maturity or total return.

Current yield offers investors a quick and straightforward way to gauge the income generated by a fixed-income investment in relation to its current market value. While it's a valuable tool for initial assessments, it should be used in conjunction with other financial metrics to make well-informed investment decisions.