Adjusting Current Yield to be a BetterApproximation of Yield to Maturity

Current yield is a common approximation for abond’s yield to maturity. The approximation becomes less accurate as the bond price moves away from par value. By performing a relatively easy calculation that incorporates an annuity calculation with the coupon rate, an adjustment to current yield can be generated that is a much better approximation of the actual yield to maturity.