Series 7 practice questioneasyDebt Securities — Corporate Bonds — Scenario — Current Yield
A bond with an 8% coupon rate is trading at par ($1,000). What is the current yield?
- A4%
- B8%✓ Correct answer
- C10%
- D80%
Explanation
Why B — 8%
When a bond trades at par, the current yield equals the coupon rate. Current yield = Annual Coupon / Market Price = $80 / $1,000 = 8%. At par, all yield measures (nominal yield, current yield, and YTM) are the same. The relationship between these yields changes only when the bond trades at a premium or discount to par value.
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