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    Question

    The current yield on a bond is calculated to find the return on a bond. How is current yield calculated?

    A Dividing the Coupon interest with the Face Value of the bond Correct Answer Incorrect Answer
    B Dividing the Coupon interest with the Redemption Value of the bond Correct Answer Incorrect Answer
    C Dividing the Coupon interest with the Market Value of the bond Correct Answer Incorrect Answer
    D Finding the rate at which the PV of Cash inflows equates to the PV of the cash outflow Correct Answer Incorrect Answer
    E None of the above Correct Answer Incorrect Answer

    Solution

    The current yield is simply the coupon payment as a percentage of the bond’s purchase price. In other words, it is the return a holder of the bond gets against its purchase price which may be more or less than the face value or the par value. The current yield does not take into account the reinvestment of the interest income received periodically. Current Yield =( absolute Coupon Amount periodically)/ (Market Price)

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