What does the rolling yield formula entail?

The rolling yield formula refers specifically to an approach used in the fixed income investment context that emphasizes both the yield income from the bond and the return generated from price changes as the bond approaches maturity. This is captured in the combination of yield income and the roll-down return.

Yield income represents the income generated from coupon payments of the bond, while the roll-down return is the price appreciation that occurs as the bond gets closer to its maturity, generally leading to an increase in value as the bond moves down the yield curve. Thus, when investors consider the rolling yield, they are effectively evaluating the total return they can expect from holding the bond, factoring in both the cash flows from the coupons and the capital gains realized through price movements.

Other options do not accurately represent the calculation of rolling yield; for example, combining current yield with future yield does not reflect the actual income derived from the bond and the impact of time on bond pricing. Similarly, total return minus yield income would not yield a meaningful result in this context. Lastly, merely summing the coupon payment with the current bond price overlooks the critical aspects of how the bond's price evolves over time in relation to its yield.