Financial Industry Regulatory Authority (FINRA) Practice Exam 2026 - Free FINRA Practice Questions and Study Guide

When a bond is purchased at a discount, the current yield is calculated using the bond's annual coupon payment divided by its current market price. Since the bond is trading below its face value (which is why it's considered a discount), the current market price is less than the face value. As a result, the amount paid for the bond is lower, but the coupon payment remains the same.

This means that the ratio of the coupon payment to the market price (which is how current yield is derived) will result in a figure that is higher than the bond's coupon rate. Thus, the current yield will indeed be higher than the coupon rate when a bond is purchased at a discount.

In the context of this question, since the bond's fixed coupon payment stays constant while the price paid is lower than the face value, this leads to the conclusion that the current yield exceeds the coupon rate.