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12 March, 06:29

Assume that a $1,000 bond issued in 2015 pays $100 in interest each year. What is the current yield on the bond if it can be purchased for $1,200? Enter your answer in percent form and to one decimal place. For example, if your answer is 0.034 (3.4%) then enter 3.4

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  1. 12 March, 08:56
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    8.33%

    Explanation:

    Current yield of a bond is used to determine the annual rate of return of a bond that an investor holds. The formula for calculating it is as follows;

    Current yield of a bond = annual coupon payment / current price

    Annual coupon payment = interest payment = $100

    Current price = $1,200

    Next, plug in the numbers to the above formula;

    Current yield = 100 / 1,200

    = 0.0833

    As a percentage, multiply 0.0833 by 100;

    =0.0833 * 100

    = 8.33%

    Therefore, the current yield on the bond is 8.3% (to one decimal place.)
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