Series 7 practice questionmediumDebt Securities — Bond Pricing — Current Yield
A corporate bond with a 6% coupon rate is trading at $900. What is the current yield?
- A6.00%
- B9.00%
- C5.40%
- D6.67%✓ Correct answer
Explanation
Why D — 6.67%
Current yield is calculated by dividing the annual coupon payment by the current market price: ($60 / $900) x 100 = 6.67%. When a bond trades at a discount (below par), the current yield is higher than the coupon rate. When it trades at a premium (above par), the current yield is lower than the coupon rate.
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