Giuseppe purchases an Internet, Inc $100,000 bond at 102.25 that pays 3.5%
What is the (A)cost of the bond
(B) Annual interest and (C) annual yield?
To calculate the cost of the bond, you need to multiply the purchase price by the face value of the bond.
(A) Cost of the bond = Purchase price * Face value
The purchase price of the bond is given as $102.25, and the face value is $100,000. Plugging in these values into the formula:
Cost of the bond = $102.25 * $100,000 = $10,225
So, the cost of the bond is $10,225.
(B) To calculate the annual interest, you need to multiply the face value of the bond by the interest rate.
Annual interest = Face value * Interest rate
The face value is $100,000, and the interest rate is 3.5%. Converting the percentage to decimal form:
Annual interest = $100,000 * 0.035 = $3,500
Therefore, the annual interest is $3,500.
(C) To calculate the annual yield, you need to divide the annual interest by the cost of the bond and multiply by 100 to convert it into a percentage.
Annual yield = (Annual interest / Cost of the bond) * 100
The annual interest is $3,500, and the cost of the bond is $10,225. Plugging in these values into the formula:
Annual yield = ($3,500 / $10,225) * 100 ≈ 34.22%
So, the annual yield on the bond is approximately 34.22%.