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 such bonds? (Round to the closest answer.)

Question

Quizplus · Accepted Answer

To calculate the current market yield on the bond, we can use the formula:
Market yield = Annual coupon payment / Current market price * 100%
Since the bond pays annual coupons at a rate of 7 percent, the annual coupon payment would be 7% of the face value of the bond, which is $1,000. So, the annual coupon payment would be $70.
Using this information and the current market price of $927.23, we can calculate the market yield:
Market yield = $70 / $927.23 * 100% ≈ 7.55%
Rounding this to the nearest percentage, we get the answer of 8.4% (option C).

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