A fixed-rate bond was originally priced at $100 and paid $5 per year in interest.

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.