What is the current yield of a $1,000 par value bond with a 5% coupon selling for $800?

To determine the current yield of a bond, you use the formula:

Current Yield = (Annual Coupon Payment / Current Market Price) x 100.

In this case, the bond has a par value of $1,000 and a 5% coupon rate. This means the annual coupon payment is:

Annual Coupon Payment = 5% of $1,000 = $50.

Given that the bond is currently selling for $800, you can substitute these values into the formula:

Current Yield = ($50 / $800) x 100.

Calculating this gives:

Current Yield = 0.0625 x 100 = 6.25%.

Therefore, the current yield of the bond is 6.25%, which signifies the income the investor can expect relative to the market price of the bond. The chosen answer accurately represents the current yield calculation based on the coupon payment and bond price.