Chester has a par value $500 bond issued by Harris County. The bond pays 6.2% yearly interest, and has a current market rate of 98.626. If Harris County bonds had a market rate of 101.760 instead of 98.626, what would be the current yield on Chester’s bond?

The bond pays $500 × 0.062 = $31 in yearly interest. At a market rate of 101.760, its price is 1.01760 × $500 = $508.80. Current yield is annual interest divided by current price: $31 ÷ $508.80 ≈ 0.061, or 6.1%, so the best answer is 0.061.

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