Question

Nathan Akpan is planning to invest in a seven-year bond that pays annual coupons at a rate of 7 percent. It is currently selling at $927.23. What is the current market yield on this bond? (Round to the closest answer.)

A) 10.4%
B) 9.5%
C) 8.4%
D) 7.5%

Answer 1

The current market yield on the bond is approximately 7.56%.

Step-by-step explanation:

The current market yield on the bond can be calculated by dividing the annual coupon payment by the current market price of the bond. In this case, the annual coupon payment is 7% of the face value, which is $70. The current market price of the bond is $927.23. Therefore, the current market yield can be calculated as follows:

Current Market Yield = (Annual Coupon Payment / Current Market Price) * 100%

Current Market Yield = (70 / 927.23) * 100% = 7.56%

Therefore, the current market yield on the bond is approximately 7.56%.