Plz heLP finance?

Question

A bond with a coupon of $75 per year, maturing in 10 years at a value of $1,000 and current market price of $776 will have a current yield of :

11.3%
10.2%
9.7%
7.5%
whats the correct answer? and how did u get it? thank you

Answer 1

The yield is the interest rate which equates the current bond price to its cash flows. In this case the answer is 10.2%.

Calculation:
The bond has a life of 10 years. Each year there will be a positive cash flow of $75, except for the last year, when there will be a positive cash flow of $1075. We need to find the interest rate which, when used to discount these cash flows, gives a present value of $776. Using y to represent the current yield, we get the following formula (using annual compounding):

-776 = 75*(1+y)^1 + 75*(1+y)^2 + 75*(1+y)^3 + 75*(1+y)^4 + 75*(1+y)^5 + 75*(1+y)^6 + 75*(1+y)^7 + 75*(1+y)^8 + 75*(1+y)^9 + 1075*(1+y)^10

Subsituting 0,102 for y gives the correct answer.

Answer 2

Divide 75 by 776 =?