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.)

Question

Quizplus · Accepted Answer

To calculate the current market yield, we need to use the formula:
Current Market Yield = Annual coupon payment / Current market price of the bond x 100%
Annual coupon payment = 7% x face value
= 7% x $1000 = $70
Current market yield = $70 / $927.23 x 100%
= 7.55%
Rounded to the closest answer, the current market yield is 8.4% which corresponds to choice C.

Nathan Akpan Is Planning to Invest in a Seven-Year Bond