When the market interest rate rises above the coupon rate for a particular quality of bond and the bond price declines, the new expected yield is called the:

Question

Quizplus · Accepted Answer

When the market interest rate rises above the coupon rate for a particular quality of bond and the bond price declines, the new expected yield is called the current yield. This is because the bond's price has declined, but the coupon payments remain the same, so the percentage of return based on the current price (the current yield) has increased. The coupon rate or yield is the fixed rate that the bond pays out annually. Book value yield and net present value yield are not commonly used terms in relation to bond yields.

When the Market Interest Rate Rises Above the Coupon Rate