Question

Chester has a par value $500 bond issued by Harris County. The bond pays 6.2% yearly interest, and has a current market rate of 98.626. If
Harris County bonds had a market rate of 101.760 when Chester bought it, what is the current yield on Chester's bond?
a. 0.061
b. 0.062
c. 0.063
d 0.031

Answer 1

Answer:

The answer is A - 0.061. Just had a test.

Step-by-step explanation:

Answer 2

0.063 is the current yield on Chester's bond.

Option - c

Solution:

Given: Annual interest is 6.2% and current price of bond is 98.626

To find: Current yield

Current Yield: The current yield is equal to the annual interest earned divided by the current price of the bond.

The formula to calculate the current yield is as follows,

$\text {Current Yield }=\frac{\text { Annual Interest }}{\text { Current Price of bond }}$

On substituting the given values in the formula we get,

$\Rightarrow \frac{6.2}{98.626} = 0.06286374$

This value can be rounded off to 0.063.

Rounding off rules:

1. First look at the digit to immediate right of rounding off digit
2. If that digit is less than 5, do not change the rounding digit but drop all digits to the right of it.
3. If that digit is greater than or equal to five, add one to the rounding digit and drop all digits to the right of it.

Current Yield:

Current yield is an investment's annual income (interest or dividends) divided by the current price of the security. This measure examines the current price of a bond, rather than looking at its face value.