Question

Fred Salmon purchased seven $1,000 bonds at 83. The bonds pay 6.5%.

What was the cost of the bonds?
A. $7,000
B. $5,810
C. $830

What was the total annual interest?
A. $65
B. $455
C. $377.65

What is the yield?
A. 7.8%
B. 7.1%
C. 6.5%

Answer 1

Given:
bond: 7 pcs of $1,000 @ 83
bond pays 6.5%

What was the cost of the bonds?
7 * 1,000 = 7,000
7,000 * 0.83 = 5,810 Choice B.

What was the total annual interest?
7,000 * 6.5% = 455 Choice B.

What is the yield?
6.5%

Answer 2

1.) (B) 5810

2.) (B)$455

3.) (A) 7.8%

Explanation:

1) Seven bonds of $1000 = $7000

Cost of bond AT 83% = 7000×0.83

= $5810

2) Total annual interest = 6.5% × 7000

= $455

3) Current yield =
`(Total annual interest)/(current value)`

=
`(455)/(5810)`

= 7.8%