Question

Fred Jones purchased 5 $1,000 bonds at 92. The bonds pay 7%. What was the cost of the bonds? $ What was the total annual interest? $ What is the yield (to the nearest tenth of a percent)?

Answer 1

4600 $

350 $

7.6 %

Explanation:

Answer 2

Cost of the bonds = 4600 $

Total annual interest = 350 $

Yield = 7.6 %

Explanation:

Fred purchased the bonds for 1000 $ at 92. 1000 $ is the face value of the bond. That means the actual value of the bond = 92 % of 1000.

⇒ Actual value of the bond =
`$ (92)/(100) * 1000 $`

= 920 $

Since, Fred purchased five bonds, the total cost of the bonds = 920 X 5

= 4600 $

Actual cost of the bond = 4600 $

Total interest on the bond = Rate on the bond X Face value of the bond

=
`$ (7)/(100) * 1000 $` = 70 $

Interest on all the 5 bonds = 70 X 5 = 350 $

Total interest on the bond = 350 $

Yield is the amount got as returns on the bond.

We have the following formula to calculate yield.

Yield =
`$ \frac{Interest \hspace{2mm} earned}{Total \hspace{2mm} amount \hspace{2mm} paid} $`

∴ Yield =
`$ (350)/(4600) * 100 = 0. 076 * 100 = 7.6\% $`

Therefore, Yield = 7.6%