Penny Pincher Discount Grocers has issued a bond with a coupon rate of 11%. It recently closed at a price of $1023.75. What is the bond's current yield?

Question

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The current yield of a bond is calculated by dividing the annual coupon payment by the bond's price. With a coupon rate of 11%, for a bond with a face value of $1000 (assuming standard face value), the annual coupon payment is $110. The current yield is therefore $110 / $1023.75 = 0.1075 or 10.75%.

Penny Pincher Discount Grocers Has Issued a Bond with a Coupon