You paid $865.50 for a corporate bond that has a 6.75% coupon rate. What is the bond's current yield?

Question

Quizplus · Accepted Answer

The current yield is calculated by dividing the annual interest payment by the current market price of the bond, and then multiplying by 100 to get a percentage.

Annual interest payment = coupon rate x face value 
= 6.75% x $1000 
= $67.50

Current market price = $865.50

Current yield = (annual interest payment / current market price) x 100 
= ($67.50 / $865.50) x 100 
= 7.800%

Therefore, the answer is B.

You Paid $865