CFA Level I · CFA Level I Exam · Yield and Yield Spread Measures for Fixed-Rate Bonds
A bond with a face value of 1,000 pays an annual coupon of 6% and is trading at a price of 960. The bond's current yield is closest to:
The current yield is 6.25%. It equals the annual coupon of 60 divided by the market price of 960. The coupon rate of 6% is based on face value, so a bond trading at a discount has a higher current yield than its coupon rate.
- A5.77%
- B6.00%
- C6.25%Correct
Explanation
Current yield = annual coupon / price = 60 / 960 = 6.25%. Option A wrongly divides by a price above par, and option B simply uses the coupon rate, ignoring that the bond trades at a discount.
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