The current yield of a bond can be calculated by:Select one:a.multiplying the price by the coupon rate.b.dividing the price by the annual coupon payments.c.dividing the price by the par value.d.dividing the annual coupon payments by the price.
Question
The current yield of a bond can be calculated by:Select one:a.multiplying the price by the coupon rate.b.dividing the price by the annual coupon payments.c.dividing the price by the par value.d.dividing the annual coupon payments by the price.
Solution
The answer is d. dividing the annual coupon payments by the price.
Here's why:
The current yield of a bond is a financial term used to describe the annual return on an investment as a percentage of the current price of the investment. It is calculated by taking the bond's annual coupon payment and dividing it by the bond's current price.
So, the formula for calculating the current yield is:
Current Yield = (Annual Coupon Payment / Current Market Price) * 100%
This gives the investor an idea of what they will earn in a year, expressed as a percentage of their investment.
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