Question

A bond matures in 11 years and with a coupon rate of 8.1 percent. Coupons are paid semi-annually. The bond has a face value of $1,000 and currently sells for $915.8. What is the bond’s current yield  (enter answer as a percentage)?

Answer 1

Compute the annual coupon, using the equation as shown below:

Annual coupon = Face value*Coupon rate

                          = $1,000*8.1%

                          = $81

Hence, the annual coupon is $81.

Compute the current yield, using the equation as shown below:

Current yield = Annual coupon/ Bond price

                      = $81/ $915.80

                      = 8.844725922%

Hence, the current yield is 8.844725922%.