Final answer:
The current yield of the Treasury bond with a 3.50 percent coupon and a quoted price of 106:23 is approximately 3.28%. You find this by dividing the annual coupon payment by the price of the bond.
Step-by-step explanation:
The student has asked how to calculate the current yield on a Treasury bond with a quoted price of 106:23 and a 3.50 percent coupon, given that the bond pays interest semiannually. The quoted price of 106:23 means that the bond is priced at 106.71875% (since 23/32 = 0.71875) of the bond's face value of $1,000. To calculate the current yield, you would divide the annual coupon payments by the bond's price. In this case, annual coupon payments are $35 (since 3.5% of $1,000 is $35), and they are made semiannually, so every six months, the bond pays $17.50. Therefore, the current yield would be calculated as ($35 / ($1,000 * 106.71875/100)), which would result in a current yield of approximately 3.28%.