What is the current yield for a $1,000 corporate bond that pays 7 percent and has a current market value of $800?

To determine the current yield of the corporate bond, we use the formula for current yield, which is calculated as the annual coupon payment divided by the current market price of the bond.

In this case, the bond has a face value of $1,000 and pays a 7 percent annual coupon. Therefore, the annual coupon payment is:

[ \text{Coupon Payment} = \text{Face Value} \times \text{Coupon Rate} = 1,000 \times 0.07 = 70 \text{ dollars} ]

Next, to find the current yield, we take the coupon payment and divide it by the current market value of the bond, which is $800:

[ \text{Current Yield} = \frac{\text{Annual Coupon Payment}}{\text{Current Market Value}} = \frac{70}{800} = 0.0875 ]

To express this as a percentage, we multiply by 100:

[ 0.0875 \times 100 = 8.75% ]

Thus, the current yield for the bond is 8.75 percent. This yield indicates how much return an investor would earn based on the current market price