Final answer:
The market value of a bond that yields $100 yearly at 4 percent interest is calculated by dividing the annual payment by the interest rate: $100 / 0.04 = $2,500. Thus, the market value is $2,500.
Step-by-step explanation:
The student has been asked to calculate the market value of a bond that yields $100 yearly at a 4 percent interest rate. To find the bond's market value, we need to determine how much money would need to be invested at the current market interest rate to receive the same annual payment ($100) that the bond provides.
If a bond pays $100 yearly (which is 4% of its market value), to find the total market value, we can set up the following equation:
Annual Payment = Market Value x Interest Rate, which becomes $100 = Market Value x 0.04. Solving for Market Value, we find that the Market Value = $100 / 0.04 = $2500.
Therefore, the correct answer is (d) $2,500, as this is the amount of money that, at 4 percent interest, would generate a $100 yearly return.