Question

A coupon bond that pays interest of $70 annually has a par value of $1,000, matures in 5 years, and is selling today at a $77.75 discount from par value. The current yield on this bond is _________.

Answer 1

Current Yield = 0.07590 or 7.590%

Step-by-step explanation:

A current yield refers to the annual return that a security provides based on the interest or dividend payments it makes expressed as a percentage of it current price. Thus, the current yield on bond can be calculated as follow,

Current Yield - bond = Interest payment per year / Current price

Current Yield - Bond = 70 / (1000 - 77.75)

Current Yield = 0.07590 or 7.590%