You purchased Photon, Inc. bonds exactly one year ago today for $875. During the latest year, you received $65 in interest on the bonds. The current yield on these bonds is 6.5%.

Question

Quizplus · Accepted Answer

To calculate the current value of the bonds, we need to use the formula:

Current value = Purchase price + Interest earned

Current value = $875 + $65

Current value = $940

To calculate the current yield, we divide the annual interest by the current value and multiply by 100.

Current yield = (Annual interest / Current value) x 100

Current yield = ($65 / $940) x 100

Current yield = 6.91%

Since the current yield (6.91%) is higher than the stated yield (6.5%), the bonds must be selling at a discount. Therefore, it is false that the bonds are worth the same as when they were purchased.

You Purchased Photon, Inc