Question

John Hendrix purchased a $5,000 bond at 120. The bond pays 7%.


What was the cost of the bond? $

What was the annual interest? $

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

please explain your answer

Answer 1

The cost of bond was $6,000.

The annual interest was $350.

The current yield is 5.83%.

Step-by-step explanation:

John Hendrix purchased a $5,000 bond at 120.

The price of  bond = $\frac{120}{100}\times 5,000$  = $6000

The cost of bond was $6,000.

The annual interest = 7% of 5,000

                                 = $\frac{7}{100}\times 5,000$

                                = 0.07 × 5,000

                                = $350

The annual interest was $350.

$\text{Bond yield}=\frac{\text{annual interest received}}{\text{purchased price of bond}}$

                 $=\frac{0.07}{1.2}$

                 = 0.0583333

                 = 0.05833 × 100 = 5.83%

The current yield is 5.83%.

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