Question

Calculate the current yield from the given information:

Par value $1,000
Coupon rate 8%
YTM 10%
Number of years to maturity 15
9.44 %
10.53%
8.00%
10.00%

Answer 1

I am following up on the first answer

Answer 2

Answer: Option (C) is correct.

Explanation:

Given that,

Par(face) value = $1,000

Coupon rate = 8%

YTM = 10%

Number of years to maturity = 15

Here, we assume that this bond is purchased at face value

Coupon payment = 8% of $1000

                             = $80

Current Yield = $\frac{Coupon\ payment}{Market\ Price} \times 100$

                       = $\frac{80}{1000} \times 100$

                       = 8%

When a bond or any other instrument is purchased at a face value then the current yield is same as the coupon rate.