Question

PK Software has 8.8 percent coupon bonds on the market with 23 years to maturity. The bonds make semiannual payments and currently sell for 111.25 percent of par. What is the current yield on PK's bonds

Answer 1

Current yield = 0.07910 or 7.910% rounded off to 7.91%

Step-by-step explanation:

A current yield is the annual income provided by an investment - be it equity or debt providing dividend or interest respectively - as a percentage of its current price. Thus, the formula to calculate the current yield is,

Current Yield = Dividend or Interest / Current Price of the investment or security

We assume that the face or par value of the bond is $1000. Then the coupon payment made by the bond will be 1000 * 8.8% = $88

The current price of the bond will be = 1000 * 111.25% = $1112.5

Current Yield = 88 / 1112.5

Current yield = 0.07910 or 7.910% rounded off to 7.91%