Quincy Ritter pays $1,100 for a bond with a face value of $1,000. The coupon rate is 10 percent, and payments are made annually. The current yield is equal to
A) 9.5 percent.
B) 9.1 percent.
C) 10 percent.
D) 11.1 percent.

Question

Quizplus · Accepted Answer

The current yield is calculated by dividing the annual interest payment by the market price of the bond. The annual interest payment is 10% of the face value, which is $1000 x 0.10 = $100. The market price is $1,100. Therefore, the current yield is $100 / $1,100 = 0.091 or 9.1%.

Quincy Ritter Pays $1,100 for a Bond with a Face