Question

Joe McCain purchased 5 $1,000 bonds at 89. The bonds pay 6%. What was the cost of the bonds? What was the total annual interest? What is the yield?

Answer 1

1,000×0.89=890
1,000×0.06=60
60÷890=0.0674*100=6.74%

Answer 2

The cost of 5 bonds $1,000 purchased by Joe McCain is at 89%.

it means cost of 5 bond each having cost $ 1,000 is ,

`=(89)/(100)* 1,000\\\\=890`

Cost of 5 bonds which were $ 1,000 is available at $890.

Cost of one bond

`=(890)/(5)=178`

Cost of one bond =$ 178

Bond pays 6% interest.

Interest on one bond

`=178 +178*(6)/(100)\\\\=178 * (106)/(100)\\\\=178 * 1.06=188.68`

Interest = 188.68 - 178=$ 10.68

So, total interest on 5 bonds = 5 × 10.68=$53.40

It can be either monthly or yearly , as it is only written that bond pays 6%.

The Yield is given as,

there is no commission, no closing price

`=\frac{\text{Interest income}}{\text{Bond investment}}* 100\\\\=(53.40)/(890)* 100\\\\=(534)/(89)\\\\=6`

So,yield is equal to interest paid by the bond=6%