A coupon bond pays annual interest, has a par value of $1,000, matures in 12 years, has a coupon rate of 11%, and has a yield to maturity of 12%.The current yield on this bond is

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 $1,000 * 11% = $110. Since the yield to maturity is higher than the coupon rate, the bond is selling at a discount, but the current yield is still based on the coupon rate, which is 11%. Therefore, the closest option is 11.73%.

A Coupon Bond Pays Annual Interest, Has a Par Value