If the Annual Interest Rate Printed on the Face of a Bond

question 142

Multiple Choice

If the annual interest rate printed on the face of a bond is 7 percent,the face value of the bond is $1,000,and the current market price of the bond is $250,what is the current yield on the bond?

• A)25 percent.
• B)14 percent.
• C)28 percent.
• D)18 percent.

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Definitions:

Creditor

An individual or institution that lends money or extends credit to another entity, which is obliged to pay back the loan.

Pledge

The transfer of collateral to a secured party.

Collateral

Assets pledged by a borrower to secure a loan or credit, which the lender can seize if the borrower defaults on the repayment.

Perfection

In legal and financial contexts, the process of securing an interest in property to achieve priority over third parties in relation to the property.