CFA Level I · CFA Level I Exam · Fixed-Income Bond Valuation: Prices and Yields
A bond with a par value of 1,000 pays an annual coupon of 6% and is priced at 950. The bond's current yield is closest to:
The current yield is about 6.32%. It equals the annual coupon of 60 divided by the market price of 950. It ignores the gain from the discount to par, and the coupon rate of 6.00% is wrong because it divides by par rather than price.
- A6.00%
- B6.32%Correct
- C6.67%
Explanation
Current yield equals annual coupon divided by price: 60 / 950 = 6.32%. The 6.00% option is the coupon rate, which uses par instead of price. The 6.67% option divides by a price lower than the actual price, so it overstates the yield.
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