Calculations Flashcards
1
Q
Bond Yield:
Coupon payment/Market price=??
A
Current yield (CY)
2
Q
What is the current yield of a 6% bond trading for $800?
A
Answer: 7.5%
Current yield=annual income/current market price
$60/$800=7.5%
This bond is trading at a discount. When prices fall, yield rises.
The current yield is greater than the nominal yield when bonds are trading at a discount.
3
Q
What is the current yield of a 6% bond trading for $1,200?
A
Answer: 5%
$60/$1,200 = 5%
Bond is trading at a premium. Price is up and yield is down.
The current yield is less than the nominal yield when bonds are trading at a premium
