Question

An Apple Incorporated bond is contracted to pay a semi-annual coupon at the rate of 8.5%. This $1,000 principal bond has a YTM of 9.24% and currently sells for $942.10. What is the annual current (coupon) yield associated with this bond? (a) 4.51% (b) 8.50% (c) 9.02% (d) 9.81% (e) 4.91%

Answer 1

Answer: (c) 9.02%

Explanation:

The current yield is equal to the annual interest earned divided by the current price of the bond.

Current Yield = Annual interest earned / Current price of the bond

Annual interest earned = 8.5% x $1000 = $85

Current price of the bond = $942.10

Current Yield = ( 85 / 942.10 ) x 100 = 9.02%