John Bourne purchases 10 XYZ convertible bonds at 110 that are convertible at $20. The bonds are due to mature in 24 years at par value, and they pay a coupon rate of 8 percent. What is the current yield of the bonds?

Explanations

There is some useless information in this question and the exam may have questions like this. What is needed here is the current yield formula: annual interest divided by market price. So 8% - which is $80 (8% of $1,000 par value) divided by $1,100 (110% x $1000 par value) 80/1100 = 7.27%