An investor pays $989.40 for a bond. The bond has an annual coupon rate of 4.8%. What is the current yield on this bond?

Question

Quizplus · Accepted Answer

The current yield is calculated by dividing the annual interest payment by the current market price of the bond. The annual interest payment is 4.8% of the bond's face value, which is typically $1000 for bonds, so the annual interest is $48 (4.8% of $1000). The current yield is then $48 / $989.40 = 0.0485 or 4.85%.

An Investor Pays $989