Final answer:
The current yield of Bourdon Software's bonds is approximately 8.57%. YTM and EAY require more complex calculations that typically involve financial calculators or spreadsheets to account for the present value of future cash flows and adjust for semiannual payments.
Step-by-step explanation:
To determine the current yield on Bourdon Software's bonds, we take the annual coupon payment and divide it by the current market price. The company's bonds have a coupon rate of 9.2%, so the annual coupon payment is 9.2% of $1,000, which is $92. Since the bond sells for 107.4% of par, the price is $1,074 ($1,000 x 107.4%). The current yield is therefore $92 / $1,074, which equates to approximately 8.57%.
Yield to Maturity (YTM) is a bit more complex to calculate as it takes into account the present value of all future cash flows (coupon payments and the face value at maturity) and equates them to the current bond price. This is typically done using financial calculators or spreadsheet software by inputting the current bond price, the coupon payment, the number of periods until maturity, and solving for the YTM.
Effective Annual Yield (EAY) adjusts the YTM for the fact that the bond pays semiannual coupons. To find the EAY, we take the semiannual YTM, convert it to a semiannual rate if it's expressed as an annual rate, and then adjust it to an annual rate by using the formula (1 + (YTM/2))^2 - 1.