Question

A corporate bond is quoted at a price of 103.16 ($1031.60) and carries a 5.20 percent coupon. The bond pays interest semiannually. What is the current yield on one of these bonds

Answer 1

5.04%

Step-by-step explanation:

Current yield is the ratio of coupon payment of a bond to its current market price. It is calculated by using coupon payment and the current market value of the bond.

Coupon Payment = $1,000 x 5.2% = $52

Formula for Current yield is as follow

Current Yield = Annual Coupon Payment / Current Market Price

Current Yield = $52 / $1,031.60

Current Yield = 5.04%

Answer 2

6.30 percent

Step-by-step explanation:

Base on the scenario been described in the question. For we to calculate the current yield of one of the bond, we have to use the following procedure

Current yield = ( 0.065×$1,000)/(1.0316 × $ 1,000)

Current yield = 65 / 1,031.6

Current yield = 0.063008918185343× 100%

Current yield = 6.30percent approximately.