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Allen Stewart purchased a $2,000 bond at 110. The bond pays 6%.


What was the cost of the bond?


What was the annual interest?


What is the yield (to the nearest tenth of a percent)?

Verified Answer :

Aliwohaish12

2000110/100=2,200
20000.06=120
120/2200=0.0545×100=5.45%

Answer:

Cost = $2200

Annual interest = $120

Yield=5.5%

Step-by-step explanation:

Given: Face value= $2000 , purchasing price = $110, Interest rate = 6%

1) Cost of the bond :

The price of a bond is quoted as a percentage of par value (100).

A bond purchased at a price of 110 means that the cost is

\(\frac{2000\times110}{100}=2200\)


2) Annual interest = face value × interest rate = 2000×0.06=120


3) Yield = Annual Interest / Cost = \(\frac{120}{2200}=0.054\)= 5.45%

Nearest to tenth of percent Yield=5.5%