Final answer:
The current yield of the municipal bond with a 4.50% coupon rate and a market price of $1,055 is approximately 4.27%.
Step-by-step explanation:
The current yield on a municipal bond reflects the annual return an investor receives relative to the bond's current market price. In this scenario, with a coupon rate of 4.50%, a par value of $1,000, and a market price of $1,055, the annual interest payment is calculated at $45 ($1,000 * 4.50%). The current yield is then determined by dividing this annual interest payment by the bond's current market price, resulting in an approximate current yield of 4.27%.
This percentage signifies the yield an investor can expect based on the bond's existing market value. The current yield is a valuable metric for investors assessing income potential, providing insights into the relative return of the bond in comparison to its market price, facilitating informed investment decisions.