Answer:
Cost of the bonds = 4600 $
Total annual interest = 350 $
Yield = 7.6 %
Step-by-step explanation:
Fred purchased the bonds for 1000 $ at 92. 1000 $ is the face value of the bond. That means the actual value of the bond = 92 % of 1000.
⇒ Actual value of the bond = [tex]$ \frac{92}{100} \times 1000 $[/tex]
= 920 $
Since, Fred purchased five bonds, the total cost of the bonds = 920 X 5
= 4600 $
Actual cost of the bond = 4600 $
Total interest on the bond = Rate on the bond X Face value of the bond
= [tex]$ \frac{7}{100} \times 1000 $[/tex] = 70 $
Interest on all the 5 bonds = 70 X 5 = 350 $
Total interest on the bond = 350 $
Yield is the amount got as returns on the bond.
We have the following formula to calculate yield.
Yield = [tex]$ \frac{Interest \hspace{2mm} earned}{Total \hspace{2mm} amount \hspace{2mm} paid} $[/tex]
∴ Yield = [tex]$ \frac{350}{4600} \times 100 = 0. 076 \times 100 = 7.6\% $[/tex]
Therefore, Yield = 7.6%
