A $1,000 par value corporate bond that pays $60 annually in interest was issued last year. Which one of these would apply to this bond today if the current price of the bond is $996.20?

Question

Quizplus · Accepted Answer

Since the bond is selling at a price lower than its par value, it is currently selling at a discount. The current yield is calculated by dividing the annual interest payment by the current price of the bond, which gives a current yield of ($60/$996.20) = 0.0602, or approximately 6.02%. Since this current yield is higher than the bond's coupon rate of 6%, the answer is B.

A $1,000 Par Value Corporate Bond That Pays $60 Annually