Barstow bonds have a face value of 1000 and are currently qu

Barstow bonds have a face value of $1,000 and are currently quoted at 96.4. The bonds have a 6 percent coupon rate. What is the current yield on these bonds?

Solution

Current Yield is one measure of bond yield. It is used to determine the rate of return that a bond will generate in a given year. Current Yield is shown as

Current Yield = (Cupon Amount / Price of bond) * 100

Calculation of Current Yield

Step 1 - Calculation of Cupon Amount

Cupon Amount = Cupon rate * Face value of bonds

Where the Cupon rate given is 6% and Face value of bonds is $1,000

Therefore

Cupon Amount = 6% * $1000

Cupon Amount = $60

Step 2 - Calculation of Current Yield on bonds

Current Yield = (Cupon Amount / Price of bond) * 100

Cupon Amount = $60

Price of bond = $96.4

Current Yield = ($60 / $96.4) * 100

Current Yield = 66.24%

Therefore the Current Yield on bonds is 66.24%