USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

-Refer to Exhibit 12.1. What is the current yield for this bond?
A) 4.18 percent
B) 5.88 percent
C) 4.77 percent
D) 8.125 percent
E) 4.063 percent

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
 
-Refer to Exhibit 12.1. What is the current yield for this bond?
A) 4.18 percent 
B) 5.88 percent 
C) 4.77 percent 
D) 8.125 percent 
E) 4.063 percent

Quizplus · Accepted Answer

The current yield is calculated by dividing the annual coupon interest by the current market price of the bond. In this case, the annual coupon interest is $40 ($1,000 face value x 4% coupon rate) and the current market price of the bond is $840. Therefore, the current yield is (40/840) x 100 = 4.77 percent.