A bond with an 8% coupon trades at 80 cents on the dollar. What is the current yield?

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Multiple Choice

A bond with an 8% coupon trades at 80 cents on the dollar. What is the current yield?

Explanation:
Current yield is the annual coupon income divided by the current price. Here, the bond pays 8% of its 100 par value each year, so the annual coupon is 8. The price is 0.80 × 100 = 80. So the current yield is 8 ÷ 80 = 0.10, or 10%. This measure uses the price you’d pay now and ignores other factors like price changes over time or reinvestment, but it’s a quick way to gauge the income you’d receive relative to the current price.

Current yield is the annual coupon income divided by the current price. Here, the bond pays 8% of its 100 par value each year, so the annual coupon is 8. The price is 0.80 × 100 = 80. So the current yield is 8 ÷ 80 = 0.10, or 10%. This measure uses the price you’d pay now and ignores other factors like price changes over time or reinvestment, but it’s a quick way to gauge the income you’d receive relative to the current price.

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