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Question

Mr. X bought a bond at 1000 at a 10% coupon rate. But he intends to sell the bond after a year to Mr. Y. Mr. Y purchased the bond at 986. At the end of the second year, Mr. Y got the interest income on his bond. What is his (Y) current yield?

A 10.00% Correct Answer Incorrect Answer
B 10.14% Correct Answer Incorrect Answer
C 10.50% Correct Answer Incorrect Answer
D 9.00% Correct Answer Incorrect Answer
E 9.86% Correct Answer Incorrect Answer

Solution

           Current Yield = interest income/current price of a bond            Interest Income = 1000@ 10% = 100            Current Market price = 986            Current Yield = 10.14%

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