A $7,600 par value bond sells for $7,373. The coupon rate is 5.30%. What is the current yield

Question

Miranda Cannon

Mathematics

13 October, 20:10

A $7,600 par value bond sells for $7,373. The coupon rate is 5.30%. What is the current yield

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Answers (1)

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Walker Dillon · Answer 1

Current yield = 5.46%

Step-by-step explanation:

Current yield is calculated by dividing the annual income (coupon) on the bond divided by the current price of the bond

Current yield = Annual coupon / Current price

In this case,

Face value or Par value = $7,600

Price of the bond = $7,373 (shows it is a discount bond since the price < FV)

Coupon rate = 5.30%

Next, calculate the Coupon payment in dollars;

Annual coupon PMT = Coupon rate * Face value

Annual coupon PMT = 0.053 * 7,600 = $402.8

Therefore, Current Yield = 402.8 / 7,373 = 0.05463

Current yield = 5.46%