Consider a bond with a current yield of 8 percent and a price of $1,250. What is this bond's coupon?
A) 8.0 percent
B) 10.0 percent
C) 11.0 percent
D) 8.5 percent
E) 9.6 percent

Question

Quizplus · Accepted Answer

The coupon of a bond is the annual interest payment to the bondholder. The current yield is calculated as the annual interest payment divided by the current price of the bond. Given a current yield of 8 percent and a price of $1,250, the annual interest payment (coupon) can be calculated as follows: 0.08 * $1,250 = $100. To find the coupon rate, we divide the annual interest payment by the face value of the bond. Without the face value, we assume it to be $1,000 (a common face value for bonds), so the coupon rate is $100 / $1,000 = 10.0 percent.

Consider a Bond with a Current Yield of 8 Percent