The cost of the bond was 90/100 times $5,000, that is, $4,500 total.
<span>The annual interest is 5% of $5,000, that is, $250. </span>
<span>The current yield is 5% divided by (90/100), that is 5.555%; round to 5.6% as instructed. </span>
<span>The yield that real bond buyers would be more interested in is the yield to maturity, but this cannot be calculated without knowing the term (number of years). If it's a short term bond that will pay you back $5,000 in just a few years, that would add several percent to the yield, but if it's a 15-year bond the growth of the $4,500 to $5,000 adds only a fraction of 1% to the yield.</span>
When the value of something decreases by a certain factor every unit of time, instead of by a set constant, then this is called exponential decay. When the rate is constant, this is called linear decay. Hope this helps!
