A coupon bond that pays interest of $70 annually has a par value of $1000, matures in 6 years and is selling today at $50.50 discount from par value.

The current yield on this bond is ______?

Expert Solution

- Par Value of Bond = $1000

- Annual Coupon Payment = $70

- The Bond is selling at $50.50 discount from par value which means the Discount Value is $50.50

Current Price of Bond = Par value − Discount value

= $1,000 − $50.50

= $949.50

Now, Calculating the Current Yield of the Bond:-

Current Yield of the Bond = Annual Coupon/Payment/Current price

= $70/$949.5000

= 0.0737

So, the Current Yield of the Bond is 7.37%.

Junaid answered 2 years ago

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