Question

Pierce wishes to purchase a municipal bond with a par value of $500 from Chattahoochee County, and he is trying to decide which broker he should employ to purchase the bond. Broker A charges a 3.1% commission on the market value of each bond sold. Broker B charges a flat $24 for each bond sold. If the bond has a market rate of 88.754, which broker will give Pierce the better deal, and by how much? a. Broker B’s commission will be $9.75 less than Broker A’s. b. Broker B’s commission will be $3.51 less than Broker A’s. c. Broker A’s commission will be $13.76 less than Broker B’s. d. Broker A’s commission will be $10.24 less than Broker B’s.

Answer 1

Answer:He should take the option one of sales commission of 3.1% on

each bond. If he takes the 2nd option, he is required to pay 24$ per

bond. But if he takes the ist option, he is required to pay 15.5$ per bond.

88.754 is the market rate. Total investment is of 500$. Multiply the commission

rate with the amount and you get 15.5 $. There is a difference of 8.5 dollars

between the two options.

The answer is D

Answer 2

(d)

Explanation:

Bond's par value = $500

market value of the bond = 88.754% * 500

= 443.77

Commission rate charged by broker A = 3.1%

Commission of broker A =
`(3.1)/(100)`*443.77

= $13.75687

Commission of broker B = $24

Difference between the commission of broker A and broker B = 24-13.756

= $10.24

Hence, (d) Broker A's commission will be $10.24 less then Broker B's.