Final answer:
The current yield of Workman Software's bonds is calculated by dividing the annual coupon payment by the bond's market price. For bonds with a 7.8% coupon rate, selling at 100.8 percent of par value, the current yield is 7.74%.
Step-by-step explanation:
The question asks for the calculation of the current yield on the Workman Software's bonds with a 7.8 percent coupon rate, 19 years to maturity, that make semiannual payments and sell for 100.8 percent of par value. To find the current yield, we use the annual coupon payment divided by the current market price of the bond.
Since the coupon rate is 7.8%, the annual coupon payment for a $1,000 face value bond is $78 (7.8% of $1,000). The bond sells for 100.8% of its face value, so its market price is $1,008 (100.8% of $1,000). Therefore, the current yield is calculated as ($78 / $1,008) * 100% which gives us 7.74%.
The correct answer to the student's question is D. 7.74%.