Which one of the following statements is true about a $1,000, 6% annual coupon bond that is selling for $1,012?

Question

Quizplus · Accepted Answer

The current yield is calculated by dividing the annual coupon payment by the bond's current market price. In this case, the annual coupon payment is $60 (6% of $1,000) and the bond is selling for $1,012. Therefore, the current yield is 5.92% ($60/$1,012). Since the current yield is less than the coupon rate of 6%, choice A is the correct answer. The yield-to-maturity is the rate of return the investor will receive if the bond is held until maturity, and is not applicable to this question.

Which One of the Following Statements Is True About a $1,000