Bubba buys a 5% municipal bond maturing in 15 years that is trading at a market price of 85. What is the current yield?

Name: Bubba buys a 5% municipal bond maturing in 15 years that is trading at a market price of 85. What is the current yield?
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Question

Quizplus · Accepted Answer

5.88%. The current yield is the annual interest divided by the price. The bond will pay $50 of interest per year ($1,000 face amount times 5%). Dividing by the price of $850 equals 5.88%.

Bubba Buys a 5% Municipal Bond Maturing in 15 Years