Question

Hal Fritz purchased a $4,000 bond at 90. The annual interest is 5%.

What was the cost of the bond? $ _____________
What was the annual interest? $ ________________
What is the yield (to nearest tenth of a percent)?
% _____________

Answer 1

4,000×(90÷100)
=3,600

0.05×4,000
=200

0.05÷(90÷100)
=0.056×100=5.6%

Answer 2

1. $3,600

2. $200

3. 5.6%

Explanation:

We are given that,

Value of the bond = $4,000 with interest 5% at rate 90.

Thus, the cost of the bond will be
`4000* (90)/(100)` = 4000 × 0.9 = $3600.

Thus, the cost of the bond is $3,600.

We have that the annual interest rate is 5% i.e. 0.05 with value of the bond $4000.

So, the annual interest is 0.05 × 4000 = 200

Thus, the annual interest rate is $200.

Also, the final yield for the bond is given by
`(0.05)/(0.9)` = 0.056.

Thus, the yield for the bond is 5.6%.