The Current Yield (or Coupon Yield) of a Bond can be calculated by dividing the annual cash flow by the purchase price (as opposed to par price). For example, a bond with a 5.00% coupon purchase at a price of 95.00 has a current yield of 5.263%. This yield measure is rather incomplete in that it ignores capital gain or loss that will be incurred on maturity at par and it ignores interest on interest received.
Yield To Maturity
The Yield to Maturity is the preferred measure for comparing and analyzing bonds. The Yield to Maturity (unfortunately, not so simply put) is defined as the interest rate that will make the present value of the cash flows equal to the initial investment. What that basically means is that it is the yield at which the investor would be indifferent between receiving or buying this bond. This measure takes into account the amount of the initial investment, the amount of the coupon and interest earned on interest. This measure is the single best way to compare Bonds. Unfortunately, the formula is rather convoluted and can only be solved through a trial and error, or iterative, process. Fortunately, many programs, calculators and spreadsheets have this function built-in. (Click for the formula and examples).
Duration
Duration is defined as the weighted average number of years until a securities' cash flows occur, with the relative present value of each cash payment used as weights. Simply put, it is the time spent waiting for a weighted average cash flow from a security. The higher the duration, the more the price of a security will move due to a change in its interest rate. Securities with higher duration tend to be more volatile. Duration is perhaps the best measure of a Bond's tendency to volatility. Different factors affect the volatility of a Bond, and Duration captures all of them. Bonds with longer terms to maturity have higher duration. Bonds with higher coupons have lower durations than otherwise equivalent Bonds. Think about it-if a Bond has a higher coupon, than relatively more of the total cash to be received from the Bond is received sooner. Sooner means less risk.