A corporate bond is quoted at a price of 96.48 and carries a 5.75% coupon. The bond pays interest semiannually. What is the current yield on one of these bonds?

Question

Quizplus · Accepted Answer

The current yield is calculated by dividing the annual interest payment by the bond's current price. The annual interest payment is 5.75% of the bond's par value, which is typically $1000, so the annual interest is $57.50. Since the bond is quoted at 96.48, the price is $964.80. The current yield is then $57.50 / $964.80 = 0.0596, or 5.96%.

A Corporate Bond Is Quoted at a Price of 96