Current yield is used to determine Seleccione una: a. A portion of the yield on an investment b. The payout of a bond investment c. The amount of money a bond investor will earn d. The coupon rate of a bond investment
Current yield is used to determine Seleccione una: a. A portion of the yield on an investment b. The payout of a bond investment c. The amount of money a bond investor will earn d. The coupon rate of a bond investment
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:Current yield is used to determine
Seleccione una:
a. A portion of the yield on an investment
b. The payout of a bond investment
c. The amount of money a bond investor will earn
d. The coupon rate of a bond investment
Expert Solution
Introduction
Bonds are debt securities containing interest payments. Bonds could be issued and redeemed at par value, premium, or discount.
Explanation for the correct option
Current yield is computed by dividing coupon payment by the investment amount. Current yield shows the interest income earned as a percentage of investment made. In case a bond is issued at premium, then current yield will be lower than coupon rate and if bond is issued at a discount, then current yield would be higher than the coupon rate.
Thus, current yield reflects payout as a percentage of investment.
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