Generic,Inc.has bonds outstanding that mature in 20 years.The bonds have $1,000 face value,pay interest annually at a rate of 10%,and have a current selling price of $875.25.The current yield on the bonds is 11.63%.

Question

Quizplus · Accepted Answer

The current yield is calculated by dividing the annual interest payment by the current price of the bond. In this case, the annual interest payment is $100 ($1,000 face value x 10% interest rate) and the current price is $875.25. Therefore, the current yield is 11.43% ($100 / $875.25). The statement is false because it claims the current yield is 11.63%, which is incorrect.