Jane Investor purchased a $10,000 bond at 90. The annual interest is 5%.
What was the cost of the bond?
What was the annual interest?
What is the yield (to the nearest tenth of a percent)?
To determine the cost of the bond, we can multiply the face value of the bond by the percentage value it was purchased at.
The cost of the bond can be calculated as follows:
Cost of the bond = Face value of the bond x Purchase price percentage
Given that Jane Investor purchased a $10,000 bond at 90 (90% of the face value), we can calculate the cost of the bond using the formula:
Cost of the bond = $10,000 x (90 / 100) = $9,000
Therefore, the cost of the bond is $9,000.
Next, let's calculate the annual interest.
The annual interest can be found by multiplying the face value of the bond by the annual interest rate.
Annual interest = Face value of the bond x Annual interest rate
Given that the face value of the bond is $10,000 and the annual interest rate is 5%, we can calculate the annual interest as follows:
Annual interest = $10,000 x (5 / 100) = $500
Therefore, the annual interest on the bond is $500.
Now let's determine the yield (to the nearest tenth of a percent), also known as the yield to maturity (YTM). The YTM is the rate of return earned on a bond if it is held until it matures.
To calculate the yield, we need to consider the annual interest received and the cost of the bond. The formula for yield can be represented as follows:
Yield = (Annual interest / Cost of the bond) x 100%
Using the values we calculated earlier, we can calculate the yield to the nearest tenth of a percent:
Yield = ($500 / $9,000) x 100% ≈ 5.6%
Therefore, the yield of the bond (to the nearest tenth of a percent) is 5.6%.