Question

Problem 7-14 Current Yield (LG7-6)

What’s the current yield of a 4.90 percent coupon corporate bond
quoted at a price of 96.48? (Round your answer to 2 decimal
places.)

Answer 1

The current yield of a 4.90 percent coupon corporate bond quoted at a price of 96.48 is calculated by dividing the annual coupon payment by the price of the bond. In this case, the current yield is 5.08%.

Step-by-step explanation:

The current yield of a bond can be determined by taking the annual coupon payments and dividing by the current market price of the bond. In this instance, you have a bond with a coupon rate of 4.90 percent that is quoted at a price of 96.48. To calculate the current yield, follow these steps:

1. 
   
3. Identify the face value of the bond, which is typically $1,000.
4. 
   
6. Calculate the annual coupon payment by multiplying the face value by the coupon rate: $1,000 * 4.90% = $49.
7. 
   
9. Divide the annual coupon payment by the price of the bond quoted in the market: $49 / $96.48.

Performing this calculation: $49 / $96.48 = 0.5082 or 50.82% when rounded to two decimal places. Therefore, the current yield of the bond is 5.08%.