Current Yield         

Coupon Rate and Current Yield

Coupon Rate

The coupon rate or nominal interest rate of a fixed-income security, such as a bond or note, is the amount of interest paid annually divided by the bond's face value. It is expressed as a percentage. Thus it is the annual interest rate expressed as a percentage of the face value of the bond.

Current Yield

Current yield represents the true interest rate of a fixed-income security, such as a bond or note. It is the amount of interest paid annually divided by the bond's current price. If a bond is trading at a discount to its face value, then the current yield is higher than the coupon rate. If a bond is trading at a premium to its face value, then the current yield is lower than the coupon rate. As the prevailing interest rate fluctuates, bond traders will drive bond prices up or down until the current yield for the bond is equivalent to other securities of similar risk.

When you are analyzing potential option positions, it helps to have a computer program like Option-Aid that swiftly calculates volatility impacts, probabilities, statistics, and other parameters of interest. These programs can pay for themselves with the first trade that they help you with.

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