Question

Chester has a par value $500 bond issued by harris county. the bond pays 6.2% yearly interest, and has a current market rate of 98.626. if harris county bonds had a market rate of 101.760 instead of 98.626, what would be the current yield on chester’s bond? a. 0.061 b. 0.062 c. 0.063 d. 0.0310 bonds issued by rayje clothiers at a market value of 94.956, each of which yields interest of 7.5%. ian also bought 250 shares of rayje clothiers stock at $17.22 apiece. bonds from rayje clothiers yield interest of 7.5%, and stock from rayje clothiers yields dividends of $1.09 yearly. today, rayje clothiers bonds have a market value of 108.224 and rayje clothiers stock sells for $19.96 per share. if ian liquidates his portfolio and sells off all of his investments, which aspect of his investment in rayje clothiers will yield the greater total profit, and how much greater will it be? a. the bonds yielded $820.00 more in profits than the stocks. b. the bonds yielded $798.40 more in profits than the stocks. c. the stocks yielded $21.60 more in profits than the bonds. d. the stocks yielded $242.20 more in profits than the bonds.

Answer 1

The current yield for Chester's bond at a market rate of 101.760 is approximately 3.05%, which is not among the given options. Ian will earn $242.20 more from selling his Rayje Clothiers stocks than from his bonds, which makes option (d) correct.

Step-by-step explanation:

For Chester's bond issued by Harris County, the current yield on Chester’s bond can be calculated using the interest payment divided by the market price. With a market rate of 101.760 instead of 98.626, the bond would sell for $1,017.60 ($500 bond at 101.760% market rate). The yearly interest is 6.2% of the par value, which amounts to $31 ($500 x 0.062). Therefore, the current yield would be $31 / $1,017.60, which equals approximately 0.0305 or 3.05%, which is not one of the options provided. There may be a discrepancy in the question as none of the options matches this calculation.

For Ian's investment in Rayje Clothiers, the calculation for total profit from selling bonds and stocks must factor in buying and selling prices. Initially, Ian bought 10 Rayje Clothiers bonds at 94.956% of face value, resulting in $949.56 per bond, and 250 shares at $17.22 each. Upon selling, bonds have a market value of 108.224% of face value, and stock sells for $19.96 per share. Ian's total profit from bonds will be 10 x ($1,082.24 - $949.56) and from stocks will be 250 x ($19.96 - $17.22). The total profit is greater from stocks, precisely $242.20 more than bonds, making option (d) the correct answer.