Question

Sweet Sue Foods has bonds outstanding with a coupon rate of 5.44 percent paid semiannually and sell for $1,930.36. The bonds have a par value of $2,000 and 17 years to maturity. What is the current yield for these bonds

Answer 1

Answer:

Current yield=5.6%

Explanation:

The current yield is the proportion of the current price of a bond earned as annual  interest payment.

Current yield = annual interest payment/bond price

Annual interest payment = coupon rate × face value

                                          = 5.44% × $2000

                                          = $108.8

Current yield

= annual interest payment/price

= $(108.8/1,930.36) × 100

= 5.6%

Note we used the annual interest payment nothwithstanding that interests are paid semi-annually