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RoseWind [281]
3 years ago
5

You purchase a $500 bond that pays 2% coupon yield ($10), and the bond is currently trading for $400. What is the current yield?

Business
1 answer:
Thepotemich [5.8K]3 years ago
6 0

Answer :

2.5%

Step by Step Explanation:

Face value = $500

Coupon yield = 2%

Income earned on he bond each year is at the rate of 2%.

Annual coupon = $10

Current bond price = $400

Formula for current yield = \frac{Annual coupon amount}{Current bond price}

                                        = \frac{10}{400} ×100

                                        =  2.5%

Hence, the current yield is 2.5%

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