Question

A bond matures in 8 years and with a coupon rate of 7.8 percent. Coupons are...

A bond matures in 8 years and with a coupon rate of 7.8 percent. Coupons are paid semi-annually. The bond has a face value of $1,000 and currently sells for $866.36. What is the bond’s current yield  (enter answer as a percentage)?

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Answer #1
Solution:
Bond’s current yield (in percentage)    9.00        
Working Notes:
Notes:. Bond’s current yield can be computed using formula =Annual coupon /Current Bond price
Where
Current bond price is already given = $866.36 which is currently selling price.
Annual coupon = Par value of bond x coupon rate=$1000 x 7.8%= $78
Hence The bond’s current yield= Annual coupon /Current Bond price
The bond’s current yield= $78/$866.36
The bond’s current yield= 0.090031857
The bond’s current yield= 9.00%
Please feel free to ask if anything about above solution in comment section of the question.
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