You purchased a bond for $1,000. At the end of a year, the bond paid interest of $90. You sold the bond for $950 after receiving the interest payment.
-Refer to the information above. What was your coupon yield ? Round your answer to the nearest tenth of a percent.
A)9.5%
B)9 basis points
C)9.0%
D)Both B and C are correct.

Question

Quizplus · Accepted Answer

Coupon yield is the annual interest payment divided by the bond's purchase price. 
Annual interest payment is $90.
Purchase price is $1,000.

Therefore, coupon yield = ($90/$1,000) x 100 = 9%.

Option B is incorrect as 9 basis points mean 0.09% which is a very low value compared to the given options.

Option D is incorrect as B is incorrect. Coupon yield is the annual interest payment as a percentage of the bond's par value. 
In this case, the annual interest payment was $90, and the par value was $1,000.
So, the coupon yield would be ($90/$1,000) x 100 = 9%
Since the bond was sold at a discount of $50, the effective yield would be slightly higher than the coupon yield, but this is not asked in the question. Therefore, the answer is C.

You Purchased a Bond for $1,000