ICX Company has an issue of perpetual bonds (par value to $1,000) that pays 5% annual interest. Determine the yield (to the nearest tenth of 1 percent) if the bonds are currently selling for $625.
A) 5.0%
B) 8.0%
C) 3.1%
D) 6.25%

Question

Quizplus · Accepted Answer

The yield of a perpetual bond is calculated by dividing the annual interest payment by the current price of the bond. The annual interest payment is 5% of $1,000, which is $50. The yield is $50 / $625 = 0.08 or 8.0%.

ICX Company Has an Issue of Perpetual Bonds (Par Value