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Calculate the current yield on the described bond.
A
$500 Treasury bond with a coupon rate of
4.9% that has a market value of
$425
The current yield is
◻%. (Round to two decimal places as needed.)

Calculate the current yield on the described bond. $\newline$ A $\$ 500$ Treasury bond with a coupon rate of $4.9 \%$ that has a market value of $\$ 425$ $\newline$ The current yield is $\square \%$ . (Round to two decimal places as needed.)

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Exponential growth and decay: word problems

Full solution

Q. Calculate the current yield on the described bond.

\newline

A

\$ 500

Treasury bond with a coupon rate of

4.9 \%

that has a market value of

\$ 425

\newline

The current yield is

\square \%

. (Round to two decimal places as needed.)

Understand current yield: Understand what current yield means. $\newline$ The current yield of a bond is calculated by taking the bond's annual interest payment and dividing it by its current market price. Specifically, the formula is $\frac{\text{Annual Interest Payment}}{\text{Current Market Price}}$ .
Calculate interest payment: Calculate the annual interest payment. $\newline$ The bond has a coupon rate of $4.9\%$ , which means it pays $4.9\%$ of its face value in interest each year. $\newline$ Annual interest payment = (Coupon rate) $\times$ (Face value) $\newline$ = $0.049 \times \$500$ $\newline$ = $\$24.50$
Calculate current yield: Calculate the current yield. $\newline$ Current yield = (Annual interest payment) / (Market value) $\newline$ = $\$24.50 / \$425$
Perform division: Perform the division to find the current yield. $\newline$ Current yield = $\$24.50 / \$425$ $\newline$ = $0.05764705882352941$
Convert to percentage: Convert the current yield to a percentage and round to two decimal places. $\newline$ Current yield in percentage = $0.05764705882352941 \times 100$ $\newline$ = $5.764705882352941\%$ $\newline$ Rounded to two decimal places: $5.76\%$

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