Brown Enterprises’ bonds currently sell for $1,025. They have a 9-year maturity, an annual coupon of $80, and a par value of $1,000. What is their current yield?
7.90%
To find the current yield of Brown Enterprises' bonds, you need to divide the annual coupon payment by the current price and express it as a percentage.
First, let's calculate the annual coupon payment. The bonds have a par value of $1,000 and an annual coupon of $80. This means that each year, the bondholders receive $80 in coupon payments.
Next, we'll determine the current price of the bonds. Given that the bonds currently sell for $1,025, this is the price at which they are currently trading in the market.
Now, we can calculate the current yield using the formula:
Current Yield = (Annual Coupon Payment / Current Price) x 100
Plugging in the values:
Current Yield = ($80 / $1,025) x 100
Calculating this expression, we get:
Current Yield = 7.8%
Therefore, the current yield of Brown Enterprises' bonds is 7.8%.