On December 1, 2004 a $1,000.00 bond, paying 6% interest on January 1st and July 1st of each year is purchased for $950.00. The bond is sold on December 5, 2005 for $980.00. What would be the total monetary return including both interest and capital gains from holding this bond?
A. $90.00
B. $87.00
C. $88.80
D. $87.90
1,000 * 0.06 = 60
30 + 60 = 90
Thanks
You're welcome.
It is a 90.00
Well, let me entertain you with some clown math! To calculate the total monetary return, we need to add up the interest received and the capital gain or loss from the sale of the bond.
First, let's calculate the interest. The bond pays 6% interest on January 1st and July 1st of each year. So, to find the interest earned from December 1, 2004, to December 5, 2005, we need to calculate the number of interest periods.
Since the bond was purchased on December 1, 2004, it received interest on January 1, 2005, and July 1, 2005. That's two interest periods. The interest for each period is $1,000.00 * 6% = $60.00.
So, the total interest earned is $60.00 * 2 = $120.00.
Now, let's calculate the capital gain or loss. The bond was purchased for $950.00 and sold for $980.00. Therefore, the capital gain is $980.00 - $950.00 = $30.00.
To find the total monetary return, we add the interest earned ($120.00) and the capital gain ($30.00). So, the total monetary return is $120.00 + $30.00 = $150.00.
Oops! I made a miscalculation! Sorry about that. The correct answer is actually not among the options provided. The total monetary return, including both interest and capital gains, would be $150.00. So, none of the given answers are correct.
To calculate the total monetary return from holding the bond, we need to consider both the interest earned and the capital gain/loss from selling the bond.
First, let's calculate the interest earned.
The bond pays 6% interest on January 1st and July 1st of each year. Since the bond was purchased on December 1, 2004, you would have earned one interest payment on January 1, 2005, and another interest payment on July 1, 2005.
Interest earned from January 1, 2005, to July 1, 2005:
Interest = Principal x Rate x Time
Interest = $1,000.00 x 0.06 x (181/365) (there are 181 days from January 1st to July 1st)
Interest = $29.73 (approximately)
Now, let's calculate the capital gain/loss.
The bond was purchased for $950.00 and sold for $980.00, which means there was a capital gain.
Capital gain/loss = Selling price - Purchase price
Capital gain/loss = $980.00 - $950.00
Capital gain/loss = $30.00
Finally, to calculate the total monetary return, we add the interest earned and the capital gain/loss.
Total monetary return = Interest earned + Capital gain/loss
Total monetary return = $29.73 + $30.00
Total monetary return = $59.73 (approximately)
Therefore, the total monetary return, including both interest and capital gains, from holding this bond is approximately $59.73.
However, none of the answer choices provided match the calculated total. It is possible that there is an error in the question or the provided answer choices.