A bond that pays interest semiannually has a price of $961.87 and a semiannual coupon payment of $29.25. If the par value is $1,000, what is the current yield?

Multiple Choice

6.08%

5.85%

5.78%

3.04%

2.93%

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

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

Since the bond pays interest semiannually, the annual coupon payment is twice the semiannual payment:

\[
\text{Annual Coupon Payment} = 2 \times 29.25 = 58.50
\]

Now, plug the values into the formula:

\[
\text{Current Yield} = \frac{58.50}{961.87} \times 100
\]

Calculating this:

\[
\text{Current Yield} \approx 6.08\%
\]

### Answer:
**6.08%**

Would you like more details or have any questions?

---

Here are some related questions:
1. How does the current yield compare to the yield to maturity of a bond?
2. What factors affect the current yield of a bond?
3. How does a bond's price affect its current yield?
4. How would the current yield change if the bond price increased?
5. Why might an investor choose a bond with a higher current yield?

**Tip:** Remember, the current yield only considers the annual coupon payment and bond price—not any capital gains or losses.

A bond that pays interest semiannually has a price of $961.87 and a semiannual coupon payment of $29.25. If the par value is $1,000, what is the current yield?

Discover how to calculate the current yield of a bond with a price of $961.87, semiannual coupon payments of $29.25, and a par value of $1,000. This example covers essential bond yield concepts and interest rate calculations, suitable for high school students in Grades 11-12.

Math Problem Statement

Solution

Ask a new question for Free

By Image

Math Problem Analysis

Mathematical Concepts

Formulas

Theorems

Suitable Grade Level

Related Recommendation