If the annual interest rate printed on the face of a bond is 12 percent,the face value of the bond is $1,000,and the current market price of the bond is $1,200,what is the current yield on the bond?

Question

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The current yield on a bond is calculated by dividing the annual interest payment by the current market price of the bond. The annual interest payment is 12 percent of the face value, which is $1,000, so the annual interest payment is $120. The current market price of the bond is $1,200. Therefore, the current yield is $120 / $1,200 = 0.10, or 10.0 percent.

If the Annual Interest Rate Printed on the Face of a Bond