Final answer:
The current yield of a corporate bond is calculated by dividing the annual interest payment by the current market price. After a decrease in market price, the new current yield can be calculated using the same formula.
Step-by-step explanation:
The current yield of a corporate bond is calculated by dividing the annual interest payment by the current market price of the bond. In this case, if the current yield is 4% today, and the market price decreases by 32% tomorrow, we can calculate the new current yield.
Let's assume that the current market price of the bond is $100.
The annual interest payment, or coupon payment, can be calculated using the formula: Annual Interest Payment = Current Yield x Current Market Price. So, the annual interest payment today is 4% x $100 = $4.
After the decrease in market price by 32%, the new market price will be 100 - 32% of 100 = $68. The new current yield can be calculated using the formula: New Current Yield = Annual Interest Payment / New Market Price. So, the new current yield is $4 / $68 = 0.0588 or 5.88%.