CFA Practice Question
Calculate the current yield for a 7% 8-year bond whose price is $94.17.
A. 7.43%
B. 7.72%
C. 3.72%
Explanation: The current yield relates the annual dollar coupon interest to the market price. In this case current yield = 7 / 94.17 = 7.43%. The current yield will be greater than the coupon rate when the bond sells at a discount; the reverse is true for a bond selling at a premium. For a bond selling at par, the current yield will be equal to the coupon rate.
User Contributed Comments 13
| User | Comment |
|---|---|
| Sheikh | current yield is calculated in a very differnt way... ha, can you believe it - 7/94.17 - !? |
| humphrey | is current yield same as YTM? in that case the answer is nonsense. |
| kevin | Current Yield = annual dollar coupon interest / price Sheikh: what's wrong with the answer?!! |
| shasha | it's not YTM. don't know what's wrong with the formula. i did it same way. |
| swift | AnalystNotes rocks!! no blasphemy please - the answer and the explanation are perfect beyond reproach!! |
| DAS11 | Current yield is not Yield to Maturity |
| vikram59 | good question..this drove me crazy! |
| Dinosaur | sneaky sneaky |
| dlukas | I almost threw my calculator out the window. If they were really smart they would have put the YTM as one of the answers... I would have picked it and bet my balls on having the right answer. Maybe just the left one. |
| kellyyang | This is so so so easy question, why guys stuck it! We know CY=PMT/Price PMT=Face value * CR=100*7%=7 Cy=7/94.17=7.43% |
| madelinee | OMG! |
| anavaza | Current Yield should be for the semester in stead of an anual basis? the coupon aren`t semestral? |
| pigletin | if you think current yield is YTM, chances are you will not pass the exam |