Thecoupon rateof the bond remains fixed at5%, as it is based on the bond's original par value of $100.
Thecurrent yield, however, decreases because the bond's price has increased to $102.75. Current yield is calculated as:
Current Yield=Coupon PaymentCurrent Price\text{Current Yield} = \frac{\text{Coupon Payment}}{\text
{Current Price}}Current Yield=Current PriceCoupon Payment
Given:
* Coupon Payment= $5
* Current Price= $102.75
Current Yield=5102.75#4.87%\text{Current Yield} = \frac{5}{102.75} \approx 4.87\%Current Yield=102.
755#4.87%
* A. The coupon is higher than 5%: The coupon remains fixed at 5%.
* B. The current yield is higher than 5%: The current yield is lower than 5% due to the increased price.
* D. The coupon is lower than 5%: The coupon does not change with the bond's price.