Question

If the annual interest rate printed on the face of a bond is 25 percent, the face value of the bond is $1,000, and the current market price of the bond is $700, what is the current yield on the bond?

Answer 1

Answer: Current yield on the bond = 35.71%

Explanation:

Given that,

Annual interest rate printed on the face of a bond = 25 percent

the face value of the bond = $1,000

the current market price of the bond = $700

Therefore,

current yield on the bond = $\frac{Annual\ interest\ rate\ on\ the\ face\ of\ the\ bond}{Current\ price\ of\ the\ bond} \times 100$

=  $\frac{0.25\times1000}{700} \times 100$

= 35.71 %