Question

A corporate bond is quoted at a price of 106.13 and carries a 5.20 percent coupon. The bond pays interest semiannually. What is the current yield on one of these bonds?

(EDIT: not sure how to change this since the only options ive been given to answer are the dollar amounts i gave. I guess just dont answer the question, ill figure something out. other question answered the percentage should be 4.9 or something but that doesnt help if that isnt a choice)

Answer 1

Current Yield of the Bond

Current Yield of the Bond is calculated by using the following formula

Current Yield = [Annual Coupon Amount / Current Market Price of the Bond] x 100

Coupon Amount = Par Value of the Bond x Annual Coupon Rate

= $1,000 x 5.20%

= $52.00

Current Market Price of the Bond = Par Value of the Bond x Quoted Percentage of the Bond

= $1,000 x 106.13%

= $1,061.30

Therefore, the Current Yield of the Bond = [Annual Coupon Amount / Current Market Price of the Bond] x 100

= [$52.00 / $1,061.30] x 100

= 4.90%

“Hence, the current yield on one of these bond would be 4.90%”