A coupon bond pays annual interest,has a par value of $1,000,matures in 4 years,has a coupon rate of 10%,and has a yield to maturity of 12%.The current yield on this bond is ___________.

Question

Quizplus · Accepted Answer

The current yield is calculated by dividing the annual coupon payment by the current market price of the bond.

The annual coupon payment can be calculated as: 
10% x $1,000 = $100

To calculate the current market price of the bond, we need to use the yield to maturity. We can use a financial calculator or Excel to solve for this, but the formula is:

$1,000 = $100/(1 + r) + $100/(1 + r)^2 + $100/(1 + r)^3 + $1,100/(1 + r)^4

where r is the yield to maturity. Solving for r gives:

r = 10.65%

Therefore, the current yield is:

$100/$942.70 = 10.65%

So, the best choice is C) 10.65%.

A Coupon Bond Pays Annual Interest,has a Par Value of $1,000,matures