Question

cheryl wants to purchase a par value $500 bond from agram imports. agram imports bonds have a market rate of 102.114 and offer 8.1% interest. if cheryls broker charges a commission of 2.5% of the market value of each bond sold, what is the current yield on cheryls bond?
a. 0.077
b. 0.078
c. 0.081
d. 0.040

please select the best answer from the choices provided

a
b
c
d

Explanation:

Step1: Calculate bond market value

$\text{Market Value} = 500 \times 1.02114 = 510.57$

Step2: Calculate total cost (with commission)

$\text{Total Cost} = 510.57 \times (1 + 0.025) = 510.57 \times 1.025 = 523.33425$

Step3: Calculate annual interest payment

$\text{Annual Interest} = 500 \times 0.081 = 40.5$

Step4: Compute current yield

$\text{Current Yield} = \frac{40.5}{523.33425} \approx 0.077$

Answer:

a. 0.077