Question

A bond has a par value of $1,000, a market price of $300, and a 9% coupon rate. It will mature in 5 years. What is the current yield of the bond?.

Answer 1

The current yield of the bond is 30%.

What is a bond?

• A bond is a sort of financial security in which the issuer owes the bearer a debt and is obligated to repay the principle of the bond as well as interest over a specified period of time, depending on the terms.
• Interest is normally paid at regular intervals.

To calculate the current yield of the bond:

• Current yield = Annual coupon payment / Bond market price
• So, 90/300 × 100 = 30%.

Therefore, the current yield of the bond is 30%.

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