A bond has a current market price of $1,000 and pays $25 every six months.

Current yield measures the annual income produced by a bond relative to its current market price. The formula is annual interest divided by current market price. This bond pays $25 every six months, so its annual interest is $50. Dividing $50 by the $1,000 current market price gives 0.05, or 5.0%. Choice C is correct. Choice A, 2.5%, reflects only one semiannual payment divided by the bond price and fails to annualize the income. Choice B, 4.0%, would apply if the annual interest were $40, but the bond pays $50 annually. Choice D, 6.0%, would require annual interest of $60 at the same market price. The SIE fixed-income framework requires candidates to understand coupon payments, par value, market price, yield, and the relationship between income and price. Current yield is distinct from yield to maturity because it considers only annual income and current price, not redemption value, premium or discount amortization, or time remaining to maturity. Reference: Understanding Products and Their Risks; Debt Instruments; Coupon Value; Par Value; Yield.