Lily Adams purchased a $1,000 bond at 70. The bond pays 4%.
What was the cost of the bond?
What was the annual interest?
What is the yield (to the nearest tenth of a percent)?
To calculate the cost of the bond, we need to take into account the purchase price at a discount. In this case, Lily Adams purchased the bond at 70. This means she paid 70% of the bond's face value, which is $1,000.
Cost of the bond = Purchase price (%) x Face value of the bond
Cost of the bond = 70% x $1,000 = $700
Therefore, the cost of the bond is $700.
To calculate the annual interest, we need to multiply the face value of the bond by the interest rate. The bond pays 4%, and the face value is $1,000.
Annual interest = Face value of the bond x Interest rate
Annual interest = $1,000 x 4% = $1,000 x 0.04 = $40
Therefore, the annual interest is $40.
To calculate the yield, we need to consider both the purchase price and the annual interest. The yield of a bond is essentially the annual interest divided by the cost of the bond, expressed as a percentage.
Yield = (Annual interest / Cost of the bond) x 100
Yield = ($40 / $700) x 100 = 0.05714 x 100 ≈ 5.7%
Therefore, the yield of the bond is approximately 5.7% (to the nearest tenth of a percent).