SIE practice questionmediumYield Calculations — Current Yield
A bond with a par value of $1,000 has an annual coupon rate of 6% and is currently trading at $900. What is the current yield?
- A6.0%
- B5.4%
- C7.5%
- D6.67%✓ Correct answer
Explanation
Why D — 6.67%
Current yield = annual coupon payment / current market price. Annual coupon = 6% x $1,000 = $60. Current yield = $60 / $900 = 6.67%. Note: current yield is higher than the coupon rate because the bond is trading at a discount. When a bond trades below par, current yield > coupon rate.
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