A bond has a current market value of $800. The holder of the bond will receive a single payment of $1,000 one year from now. The interest rate is 10 percent. The effective yield on the bond is:

Question

Quizplus · Accepted Answer

The effective yield can be calculated using the formula:
Effective Yield = (Face Value / Current Market Value)^(1/n) - 1
where n is the number of years until the bond matures (in this case, n = 1).

Plugging in the given values, we get:
Effective Yield = ($1,000 / $800)^(1/1) - 1
= 1.25 - 1
= 0.25 or 25%

Therefore, the correct answer is C: 25 percent.

A Bond Has a Current Market Value of $800