If a bond sells for less than its par value, what can be said about its current yield?

When a bond sells for less than its par value, it is considered to be trading at a discount. The current yield of a bond is calculated by taking the bond's annual coupon payment and dividing it by its current market price.

In the case of a bond selling at a discount, the market price is lower than the par value, which means that when you divide the coupon payment by this lower price, the resulting current yield will be higher than the nominal yield (also known as the coupon rate). The nominal yield remains constant and is based on the bond’s par value, while the current yield reflects the bond's market price. As a result, since the current yield is influenced by the lower price, it ultimately results in a higher yield compared to the nominal yield. This relationship is key to understanding yields on bonds traded at discounts.