What is the gross income yield on a £100 bond with a current market price of £90 if the gross interest is £6, assuming that taxation is chargeable at a rate of 20 per cent?

Question

Quizplus · Accepted Answer

The gross income yield can be calculated as (gross interest ÷ market price) × 100%. 
Here, gross interest is £6 and market price is £90. 
So, gross income yield = (6 ÷ 90) × 100% = 6.67%. 
However, taxation is chargeable at a rate of 20%, which means that the net income yield will be lower than the gross income yield. So, the answer is B) 6.67%.

What Is the Gross Income Yield on a £100 Bond