Question

What is the current yield (not yield to maturity) of a bond with the following characteristics: 100 face, purchase price $95.60, 20-year maturity, 4% coupon paid semi-annually?

Answer 1

Current yield = Annual coupon payments/ price of bond

The annual coupon payments are = 4% * 100

= $4

The price paid for the purchase of bond is = $95.6

So, the current yield is :

= $4/ $95.6

= 4.18%