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

To calculate the current yield, we need to divide the annual coupon payment by the market price of the bond. The annual coupon payment can be calculated as:(Coupon rate x Face value) = (0.048 x 1000) = $48. The market price of the bond is $989.40, so the current yield is: (48/989.40) x 100% = 4.85%. Therefore, the best choice is B, which is the correct current yield of the bond.

An Investor Pays $989