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29 March, 20:11

A $7,600 par value bond sells for $7,373. The coupon rate is 5.30%. What is the current yield

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  1. 29 March, 21:40
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    Current yield = 5.46%

    Step-by-step explanation:

    Current yield is calculated by dividing the annual income (coupon) on the bond divided by the current price of the bond

    Current yield = Annual coupon / Current price

    In this case,

    Face value or Par value = $7,600

    Price of the bond = $7,373 (shows it is a discount bond since the price < FV)

    Coupon rate = 5.30%

    Next, calculate the Coupon payment in dollars;

    Annual coupon PMT = Coupon rate * Face value

    Annual coupon PMT = 0.053 * 7,600 = $402.8

    Therefore, Current Yield = 402.8 / 7,373 = 0.05463

    Current yield = 5.46%
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