What could a current yield of 5% indicate about a bond's purchase price?

A current yield of 5% can be indicative of how the bond's purchase price relates to its face value or coupon rate. Current yield is calculated by taking the bond's annual coupon payment and dividing it by its current market price.

If the current yield is higher than the coupon rate, it typically suggests that the bond was purchased at a discount. This is because when a bond is bought below its face value, the interest payment represents a larger percentage of the purchase price, leading to a higher current yield.

Conversely, if a bond had been purchased at par or at a premium, the current yield would either be equal to or less than the coupon rate, respectively. Therefore, a current yield of 5% implies that the bond's purchase price is less than its face value, confirming that it was bought at a discount.