Question

Four years ago, sam invested in grath oil. She bought three of its $1,000 par value bonds at a market price of 93. 938 and with an annual coupon rate of 6. 5%. She also bought 450 shares of grath oil stock at $44. 11, which has paid an annual dividend of $3. 10 for each of the last ten years. Today, grath oil bonds have a market rate of 98. 866 and grath oil stock sells for $45. 55 per share.

Answer 1

The yield on the bond is 12% when the interest rates are higher than the market interest rate.

Step-by-step explanation:

The yield on the bond can be calculated by taking into account the interest payments and capital gains. In this case, the investor will receive the 1,000 face value of the bond, plus 80 for the last year's interest payment. The yield will be ((1,080 - 964) / 964) * 100% = 12%. When interest rates rise, bonds issued at lower rates will sell for less than face value, while bonds issued at higher rates will sell for more than face value.