Question

A bond that pays interest semiannually has a price of $1,043.47 and a semiannual coupon payment of $27.00. If the par value is $1,000, what is the current yield? Pick one: A.4.92% B. 2.59% C. 5.18% D. 2.70% E. 5.40%

Answer 1

Information provided:

Par value= future value= $1,000

Current price= present value= $1,043.47

Semi-annual coupon payment= $27

Current yield is calculated using the below formula:

Current Yield= Annual interest/Current price

                          = $27*2/ $1,043.47

                          = $54/ $1,043.47

                          = 0.0518*100

                          = 5.18%

Hence, the answer is option c.

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