Question

Jenny LePlaz is looking to invest in a five-year bond that pays annual coupons of 6.25 percent and currently sells at $912.34. What is the current market yield on such bonds? (Round to the closest answer.)

A) 9.5%
B) 8.5%
C) 6.5%
D) 7.5%

Answer 1

The current market yield on a five-year bond that pays annual coupons of 6.25 percent and currently sells at $912.34 is approximately 6.85 percent.

Step-by-step explanation:

The question asks for the current market yield on a five-year bond that pays annual coupons of 6.25 percent and currently sells at $912.34. The yield on a bond is calculated by dividing the annual coupon payment by the bond's price. In this case, the annual coupon payment is 6.25 percent of the bond's face value, which is $1,000, so it is $62.50. Thus, the current market yield is $62.50 divided by $912.34, or approximately 6.85 percent.