A $1000 face value bond, with one year to maturity that sells for $950 and has a $40 annual coupon has:

Question

Quizplus · Accepted Answer

Current yield = Annual coupon payment / Market price = $40 / $950 = 4.21%

To calculate the yield to maturity, we need to solve for the discount rate that will make the bond's present value equal to its price:

$950 = ($40 / (1 + r)) + ($1000 / (1 + r))

Solving for r, we get a yield to maturity of approximately 4.89%. However, since the question asks for the best choice that matches both the current yield and yield to maturity, we choose option D, which has a current yield of 4.21%.

A $1000 Face Value Bond, with One Year to Maturity