sandra owns a bond issued by animite energy with a par value of $1,000. the bond pays 7.6% interest yearly…

sandra owns a bond issued by animite energy with a par value of $1,000. the bond pays 7.6% interest yearly and has a market rate of 93.411 when sandra bought it. what is the current yield on sandras bond?\na. 0.076\nb. 0.074\nc. 0.081\nd. 0.089\nplease select the best answer from the choices provided

sandra owns a bond issued by animite energy with a par value of $1,000. the bond pays 7.6% interest yearly and has a market rate of 93.411 when sandra bought it. what is the current yield on sandras bond?\na. 0.076\nb. 0.074\nc. 0.081\nd. 0.089\nplease select the best answer from the choices provided

Answer

Explanation:

Step1: Calculate annual interest payment

The annual - interest payment is calculated as a percentage of the par value. The par value of the bond is $1000 and the annual interest rate is 7.6%. So the annual interest payment $I$ is $I = 1000\times0.076=76$.

Step2: Calculate the bond price

The market rate is 93.411, which means the bond price $P$ is $P = 1000\times\frac{93.411}{100}=934.11$.

Step3: Calculate the current yield

The formula for current yield $CY$ is $CY=\frac{I}{P}$. Substitute $I = 76$ and $P = 934.11$ into the formula: $CY=\frac{76}{934.11}\approx0.081$.

Answer:

C. 0.081