Flat yield

The flat yield of a bond is simply the annual coupon payment divided by the current price.

The only virtue of the flat yield for valuation is that it is extremely simple to calculate. It can be a reasonable approximation of the YTM for a bond that has a long remaining life, and is equal to the YTM for a perpetual bond (one that will never mature and be repaid, but carry on paying interest indefinitely).

There is little reason to use to flat yield, except perhaps when constructing a portfolio to yield a target income. Computers automate the calculation of YTM, and many trading systems and information services display the YTM of publicly traded bonds.

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