A bond with an annual coupon rate of 4.7% sells for $975. What is the bond’s current yield?



The current yield of a bond is calculated using the formula:

\[
\text{Current Yield} = \frac{\text{Annual Coupon Payment}}{\text{Price of the Bond}} \times 100
\]

### Step 1: Calculate the Annual Coupon Payment
The bond has a coupon rate of 4.7%, which means it pays 4.7% of its face value in interest each year. However, the face value is not given directly, but we can assume it is $1,000, which is typical for bonds unless specified otherwise.

\[
\text{Annual Coupon Payment} = 0.047 \times 1000 = 47 \, \text{dollars}
\]

### Step 2: Calculate the Current Yield
Now, we can use the bond price ($975) and the annual coupon payment ($47) to calculate the current yield:

\[
\text{Current Yield} = \frac{47}{975} \times 100 = 4.82\%
\]

Thus, the bond’s current yield is approximately **4.82%**.

Would you like a more detailed explanation or have any questions?

Here are 5 related questions to explore this topic further:
1. What is the difference between current yield and yield to maturity?
2. How does a bond's price affect its current yield?
3. How does coupon rate differ from current yield?
4. What happens to current yield if the bond price decreases?
5. Can current yield be used to measure total bond returns?

**Tip:** Remember, current yield only considers the income portion of return (interest payments) and ignores price changes or the time value of money.

A bond with an annual coupon rate of 4.7% sells for $975. What is the bond’s current yield?

Learn how to calculate the current yield of a bond with a 4.7% annual coupon rate priced at $975. Follow a step-by-step solution using the formula: Current Yield = (Annual Coupon Payment / Price) × 100. This guide covers essential concepts in bond yield and is ideal for finance students.

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