Final answer:
The cost of the bond is $7,938.75.
The annual interest earned is $356.24.
The annual yield is 4.49%.
Step-by-step explanation:
a. To find the cost of the bond, we multiply the face value of the bond by the percentage of the face value that is paid for.
In this case, the face value of the bond is $9,000 and it is purchased at 88.25% of the face value.
So, the cost of the bond is $9,000 * 88.25%
= $7,938.75.
b. To find the annual interest earned, we multiply the cost of the bond by the annual interest rate.
In this case, the cost of the bond is $7,938.75 and the annual interest rate is 4.5%.
So, the annual interest earned is $7,938.75 * 4.5%
= $356.24.
c. To find the annual yield, we divide the annual interest earned by the cost of the bond and then multiply by 100 to get the percentage.
In this case, the annual interest earned is $356.24 and the cost of the bond is $7,938.75.
So, the annual yield is ($356.24 / $7,938.75) * 100
= 4.49%.