The current yield of the bond= is 0.3538 or 35.38%.
The annualized interest rate that discounts the coupon and face value payouts of a bond to its market price is known as the yield to maturity (YTM) of that bond. It is, in other words, the interest rate that the bond's holder receives.
The current yield of the bond:
Annual coupon (C) = Par value x Coupon rate
= $1,000 x 9%
= $90
Current yield = Coupon / Current price
= $90 / $300
= 0.30 or 30%
Yield to maturity
= C + [(F – P) / n] / [ (F + P) /2
C = Annual coupon = $90
F = Par Value = $1,000
P = Current price = $300
n = Years left to maturity = 5
So, YTM
= $90 + [($1,000 - $300) / 5] / [($1,000 + $300) / 2]
= $90 +$140 / $650
= 0.3538 or 35.38%
The current yield of the bond= is 0.3538 or 35.38%.
To learn more about yield, refer to:
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