Compare and contrast the advantages and disadvantages of the current yield computation versus yield to maturity calculations.

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Compare and contrast the advantages and disadvantages of the current yield computation versus yield to maturity calculations.

 

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The current yield computation is useful because it is a very simple one. It provides a quick and easy assessment of what the bond offers the investor in return.  But it measures only the return from the interest rate payments. The full return to an investor also includes the capital gain or loss the bond will experience if it is selling as a discount or premium bond.  The yield to maturity computation is more difficult, but it incorporates the full return the bond offers to investors.

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