A bond has a coupon rate of 8.2 percent,a $1,000 par value,matures in 11.5 years,has a yield to maturity of 7.67 percent,and pays interest annually.What is the current yield?

Question

Quizplus · Accepted Answer

The current yield is calculated as the annual coupon payment divided by the current market price of the bond. The annual coupon payment is 8.2% of the $1,000 par value, which equals $82. To find the current market price of the bond, we use the yield to maturity (YTM) of 7.67%, the annual coupon payment, and the time to maturity. However, the question only asks for the current yield, which simplifies to $82 divided by the current market price. Without the current market price directly provided, we rely on the given options and the definition of current yield to deduce the correct answer. Given the options and understanding that the current yield falls between the coupon rate and the YTM when the bond is priced at a premium (because the coupon rate is higher than the YTM), option A (7.89 percent) is the closest estimate we can select based on the information provided and the nature of the question.

A Bond Has a Coupon Rate of 8