A bond has a face value of $1,000, an annual coupon rate of 5.

Current yield measures the annual coupon income relative to the bond’s current market price. The bond’s annual coupon payment is:

$1,000 × 5.5% = $55

The current yield is therefore:

$55 ÷ $925 = 0.05946, or approximately 5.95%

Option B is correct.

The 5.5% coupon rate is calculated using the bond’s face value and remains fixed under the stated terms. Current yield instead uses the price an investor must presently pay. Because the bond trades below its $1,000 face value, its current yield is higher than its coupon rate. Option A merely restates the coupon rate. Option C does not result from the prescribed current-yield calculation, while option D incorrectly treats the $75 discount from face value as though it were an annual income percentage.

Current yield is not the same as yield to maturity. It considers coupon income only and ignores the capital gain that would arise if the bond is redeemed for $1,000 at maturity, the remaining term, and the time value of individual cash flows. CIRO’s Retail Securities syllabus requires candidates to distinguish coupon rate, market price, current yield and yield to maturity and to perform standard bond-yield calculations.

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