Question

The current yield is a good approximation to the yield to maturity​ when:

​(Check all that​ apply.)
A. the coupon rate of the bond is higher than its yield to maturity
B. the current bond price is below its face value
C. the maturity of the bond occurs over a ten-year period
D. the bond is a short-term bond
E. the bond price is very close to par

Answer 1

The current yield is a good approximation to the yield to maturity when the coupon rate of the bond is higher than its yield to maturity, the current bond price is below its face value, and the bond price is very close to par.

Step-by-step explanation:

The current yield is a good approximation to the yield to maturity when:

• A. the coupon rate of the bond is higher than its yield to maturity
• B. the current bond price is below its face value
• E. the bond price is very close to par

The current yield of a bond is calculated by dividing the annual interest payment by the current market price of the bond. It is a measure of the income generated by the bond as a percentage of its current price. The current yield can serve as an approximation of the yield to maturity when the coupon rate of the bond is higher than its yield to maturity, the current bond price is below its face value, and the bond price is very close to par.