Messenger,Inc.bonds have a 4% coupon rate with semiannual coupon payments and a $1,000 par value.The bonds have 11 years until maturity,and sell for $925.What is the current yield for Messenger's bonds?

Question

Quizplus · Accepted Answer

The current yield is calculated as the annual coupon payment divided by the current market price of the bond. The annual coupon payment is 4% of the $1,000 par value, which is $40. Since the bond sells for $925, the current yield is $40 / $925 = 0.04324, or 4.32%.