CFA Level I · CFA Level I Exam · Fixed-Income Instrument Features
A bond with a face value of 1,000 pays a 5% annual coupon and is priced at 950. The bond's current yield is closest to:
The current yield is closest to 5.26%. The annual coupon is 50, and dividing by the market price of 950 gives 5.26%. Using the face value of 1,000 as the base would wrongly give the coupon rate of 5.00%.
- A5.00%
- B5.26%Correct
- C5.56%
Explanation
Annual coupon = 0.05 × 1,000 = 50. Current yield = 50/950 = 5.26%. The 5.00% option uses par as the base (wrong base), and 5.56% would result from dividing by a price of 900.
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