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3 April, 12:08

Suppose that you read in The Wall Street Journal that a bond has a coupon rate of 9 percent, a price of 71 3/8, and pays interest annually. Rounded to the nearest whole percent, what would be the bond's "current" yield

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  1. 3 April, 14:05
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    This question is missing the options given below:

    A. 11%

    B. 13%

    C. 15%

    D. 17%

    E. 20%

    The correct answer is option B, the bond current yield is 13%

    Explanation:

    Bonds Current Yield = Year one cash flow / Current Price x 100 = 9 / 71.375 x 100 = 12.60% or approximately 13%

    Note that 71 3/8 is the same as 71.375% as 3/8 gives 0.375 and when added to 71% gives 71.375%

    The year cash flow is calculated as : 9% of bond par value ($100) = $9
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