FORMULAS

Question 1

The formula for current yield is

Answer 1

annual interest divided by current market value. An 8% bond would pay $80 a year. The bond is trading at $980 (98). 80 / 980 = 0.0816 (8.16% is the best answer.)

Let’s say you have an 8% bond with a face value (par value) of $1,000.

Annual Interest Payment = 8% of $1,000 = $80

But the bond isn’t selling at $1,000—it’s trading below par at $980.

🎯 Why this matters:
Current yield gives you an idea of the return today based on what you pay today, not the original terms of the bond.

If a bond sells below par, the current yield is higher than the coupon rate.

If a bond sells above par, the current yield is lower than the coupon rate.

Question 2

The formula for net investment income is

________ + interest – expenses.

Answer 2

dividends + interest – expenses.

Question 3

The formula for calculating capital gains is

Answer 3

The formula for calculating capital gains is income received plus gains (or minus losses) divided by cost basis equals total return.

Question 4

Gross investment income is

Answer 4

interest and dividends received from securities in the investment company’s portfolio.