Suppose that you read in The Wall Street Journal that a bond has a coupon rate of 9 percent,a price of 71 3/8,and pays interest annually.Rounded to the nearest whole percent,what would be the bond's "current" yield?

Question

Quizplus · Accepted Answer

To calculate the current yield, we need to divide the annual coupon payment by the bond's price.

The bond's annual coupon payment can be calculated by multiplying its coupon rate by its face value.

Coupon payment = 9% * $1000 = $90

The bond's price is 71 3/8 or 71.375% of its face value, which means its price is $713.75.

Current yield = ($90 / $713.75) * 100% = 12.61%

Rounded to the nearest whole percent, the answer is 13%, which corresponds to choice (B).

Suppose That You Read in the Wall Street Journal That