A $1,000 face value bond, with an annual coupon of $40, one year to maturity and a purchase price of $980 has a:

Question

Quizplus · Accepted Answer

Current yield = Annual coupon payment / Purchase price = $40 / $980 = 4.08%
Yield to maturity (YTM) is the total return anticipated on a bond, assuming it is held until maturity and all interest payments are reinvested at the same rate. 
To calculate YTM, we need to solve for the interest rate in the bond pricing formula, which takes into account the bond's current market price, face value, coupon rate, and time to maturity. 
Using a financial calculator or Excel, we can find that the YTM on this bond is approximately 6.12%. 
Therefore, the correct answer is C, which states that the bond has a current yield of 4.08% and a YTM of 6.12%.

A $1,000 Face Value Bond, with an Annual Coupon of $40