Current Yield Calculation on Discount Corporate Bond
A corporate bond with an 8.0% nominal coupon rate is trading at a market price of 80 ($800 per bond). What is the Current Yield of this bond?
Current Yield = Annual Interest Payment ÷ Current Market Price = $80.00 ÷ $800.00 = 10.00%.
Complete Analysis & Legal Rationale
Annual coupon = 8% of Par ($1,000) = $80. Current price = 80% of $1,000 = $800. Current Yield = $80 ÷ $800 = 0.10 = 10.00%. Because the bond is bought at a discount, current yield is higher than nominal coupon.
Mathematical Step-by-Step Derivation
- Step 1: Annual Interest = 8% × $1,000 Par = $80.00.
- Step 2: Current Market Price = 80% × $1,000 = $800.00.
- Step 3: Current Yield = $80.00 ÷ $800.00 = 10.00%.
Distractor Autopsy (Why Other Options Are Traps)
FINRA exam writers design incorrect distractors using specific calculation mistakes and regulatory misconceptions. Review why each option succeeds or fails:
$80 ÷ $800 = 10.00% current yield.
8% is nominal coupon yield on par ($1,000), not current yield.
Multiplies 8% × 80% = 6.4%, an erroneous calculation.
Arbitrary calculation.
Official Standard: Standard current yield calculation disclosure.