A bond has a face value of $1,000. The bond holder receives $50 per year in interest. The bond will mature on March 20, 2035. Yesterday the bond sold for $1,100 in the secondary bond market. Which statement is TRUE based on the given information?

Question

Quizplus · Accepted Answer

The current yield is calculated by dividing the annual interest payment by the market price of the bond. Here, it is $50/$1100 = 4.55%. The coupon rate is determined by the face value, not the market price, so it is $50/$1000 = 5%, which is not an option provided.

A Bond Has a Face Value of $1,000