a 2000$ treasury bond with a coupon rate of 4.5% that has a market value of 1850$
What's the current yield?
To calculate the current yield of a treasury bond, you need to know the coupon rate and the market value. The current yield is the annual interest payment (coupon payment) divided by the market value, expressed as a percentage.
In this case, the coupon rate of the bond is 4.5%, which represents the percentage of the face value of the bond that is paid as interest annually. This means that for a $2000 bond, the annual coupon payment would be:
Coupon Payment = Face Value * Coupon Rate
Coupon Payment = $2000 * 4.5%
Coupon Payment = $90
The market value of the bond is given as $1850. Therefore, the current yield can be calculated as:
Current Yield = (Coupon Payment / Market Value) * 100%
Current Yield = ($90 / $1850) * 100%
Evaluating this expression gives us:
Current Yield = 0.0486 * 100%
Current Yield = 4.86%
Therefore, the current yield of the $2000 treasury bond with a coupon rate of 4.5% and a market value of $1850 is approximately 4.86%.