current yield on bond?

Question

A $1000 bond with a coupon payment of $65 annually and a term to maturity of 5 yrs is trading at $940.11. If the yield on comparable securities is 8% then the currnt yield of this bond is:

How do you calculate it so the answer is 6.91%?
Thanks

Answer 1

First -- you should know that the "Current Yield" of a bond has nothing to do with the Yield-To-Maturity. It is a simple calculation that -- in my opinion -- tells you little about the bond.

The definition of current yield is Coupon Rate divided by Price.

C/P = 65/940.11 = 0.0691 = 6.91%