Series 7  General Securities Representative Exam
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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?
7.27 percent
A
7.5 percent
B
8 percent
C
9.16 percent
D
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%
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