Bond Yields
A bond with a 5% coupon rate is currently trading at $900. What is the current yield?
Current yield = Annual Interest / Market Price. A 5% coupon on $1,000 par pays $50 annually. Current Yield = $50 / $900 = 5.56%. Since the bond trades at a discount, the current yield is higher than the nominal yield.
Complete Analysis & Legal Rationale
Current yield = Annual Interest / Market Price. A 5% coupon on $1,000 par pays $50 annually. Current Yield = $50 / $900 = 5.56%. Since the bond trades at a discount, the current yield is higher than the nominal yield.
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:
Does not match the governing securities rule described in the explanation.
Does not match the governing securities rule described in the explanation.
Matches the verified teaching point in the explanation.
Does not match the governing securities rule described in the explanation.
Official Standard: Outline-level citation: item maps to Series 7 topic coverage. Prefer a specific FINRA/SEC/MSRB rule citation in a later author pass.