Question

A Puppy Pet Services $1,000 bond has a 7.5 percent coupon rate, matures in 2016, and is currently quoted at $820. The current yield is:A. 6.15 percent. B. 7.50 percent. C. 9.15 percent. D. 10.27 percent. E. 11.43 percent.

Answer 1

Option (C) is correct.

Step-by-step explanation:

Face Value = $1,000

Current Price = $820

Annual Coupon Rate = 7.50%

Annual Coupon = Annual Coupon Rate × Face Value

= 7.50% × $1,000

= $75

Current Yield = Annual Coupon ÷ Current Price

= $75 / $820

= 0.0915 or 9.15%