Question

Do-well bonds have a face value of 1000 and are currently quoted at 86.725. The bonds have coupon rate of 6.5 percent. What is the current yield on these bonds?

Answer 1

Answer:

The current yield is 7.50 per cent.

Explanation:

The face value of the bonds = 1000

Current quoting  = 86.725

The coupon rate = 6.5 %

Now we have to find the current yield by using the above information. Below is the calculation for current yield.

Price = 86.725% of 1000 = 867.25

Coupon = 0.065 * 1000 = 65

The Current yield = (Annual coupon/price) × 100

Current yield is = (65 / 867.25) * 100

Current yield is  = 7.50 per cent.