Question

John Hendrix purchased a $5,000 bond at 120. The bond pays 7%. What was the cost of the bond? What was the annual interest? What is the yield (to the nearest tenth of a percent)?"

A) Cost of the bond: $5,000
B) Cost of the bond: $4,200
C) Annual interest: $350
D) Yield (to the nearest tenth of a percent): 6.7%

Answer 1

The cost of the bond is $6,000, the annual interest is $350, and the yield (to the nearest tenth of a percent) is 5.8%.

Step-by-step explanation:

Given the information provided, we can determine the cost of the bond and the annual interest.

To calculate the cost of the bond, we notice that John purchased the bond at 120, which means he paid 120% of the bond's face value. Since the face value is $5,000, we can calculate the cost of the bond by multiplying the face value by 1.2 (120% as a decimal). Therefore, the cost of the bond is $6,000.

The annual interest can be calculated by multiplying the face value of the bond by the interest rate. Since the face value is $5,000 and the interest rate is 7% (as a decimal), the annual interest is $5,000 * 0.07 = $350.

The yield of the bond refers to the annual return as a percentage of the cost of the bond. To calculate the yield, we divide the annual interest by the cost of the bond and multiply by 100. Therefore, the yield (to the nearest tenth of a percent) is (350/6000) * 100 = 5.8%.