Which type of yield relates to the actual interest earned by bondholders based on current market price?

The current yield is relevant because it represents the annual income (interest or dividends) an investor receives from a bond relative to its current market price. This measure is calculated by taking the bond's annual coupon payment and dividing it by the bond's current market price. Since bond prices fluctuate in the market, the current yield provides investors with an indication of the income they can expect to earn based on the bond's current valuation.

This metric is particularly important for bondholders because it reflects the yield that can actually be realized in the current market environment, as opposed to the nominal yield, which is based on the bond's face value and does not account for price fluctuations. The market yield is similar but focuses on the yield based on the price that buyers are willing to pay in the current market, whereas the effective yield takes into consideration the reinvestment of interest. Current yield directly answers the question regarding the actual interest earned by investors based on what they would effectively pay to acquire the bond at its current market price.