Question

A bond with a face value of $1,000 has 8 years until maturity, carries a coupon rate of 8%, and sells for $1,100. a. What is the current yield on the bond?

Answer 1

The correct answer is 7.27%.

Step-by-step explanation:

The price of the bond is $1,100.

The face value is $1,000.

The coupon rate is given as 8%.

The current yield of the bond will be

=
`(coupon\ rate\ * face\ value)/(bond's\ price)`

=
`(0.08* 1,000)/(1,100)`

=
`(80)/(1100)`

= 0.0727

This means that the current yield on the bond is 7.27%.