497 B
497 B
(Annual Coupon / Current Price) × 100
(Relating to example in questions asked)
Notice it's higher than the coupon rate (6%) because the bond is trading below par — you're paying less but still getting the same $6 coupon, so your yield is higher.
The key relationship to remember:
- Bond trading below par → Current yield above coupon rate
- Bond trading above par → Current yield below coupon rate
- Bond trading at par → Current yield equals coupon rate