Your current CD matures in a few days. You would like to find an investment with a higher rate of return than the CD. Stocks historically have a rate of return between 10% and 12%, but you do not like the risk involved. You have been looking at bond listings in the newspaper. A friend wants you to look at the following corporate bonds as a possible investment.
A 5-column table with 2 rows. Column 1 is labeled Bond with entries A B C 7 and one-half 15, X Y Z 7 and three-fourths 15. Column 2 is labeled current yield with entries 7.5, 8.4. Column 3 is labeled volume with entries 128, 17. Column 4 is labeled Close with entries 104 and three-fourths, 100 and one-half. Column 5 is labeled Net change with entries blank, + one-fourth.

What is the annual interest you would earn on each bond?
a.
ABC 128; XYZ 17
b.
ABC 7.5; XYZ 8.4
c.
ABC 104Three-fourths; XYZ 100One-half
d.
ABC 7One-half; XYZ 7Three-fourths

Please select the best answer from the choices provided

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TopZ TopZ · Answer 1 · 2024-01-08T06:12:02+01:00

Answer: To calculate the annual interest earned on each bond, we need to multiply the current yield by the bond's face value.

a. ABC 128; XYZ 17

The current yield for ABC is 7.5% and for XYZ is 8.4%.

For ABC, the annual interest earned would be 7.5% of $128, which is $9.60.

For XYZ, the annual interest earned would be 8.4% of $17, which is $1.43.

b. ABC 7.5; XYZ 8.4

The current yield for ABC is 7.5% and for XYZ is 8.4%.

For ABC, the annual interest earned would be 7.5% of $100 face value, which is $7.50.

For XYZ, the annual interest earned would be 8.4% of $100 face value, which is $8.40.

c. ABC 104Three-fourths; XYZ 100One-half

The current yield for ABC is not provided, but the closing price is given as 104 and three-fourths.

The annual interest earned cannot be calculated without knowing the current yield.

For XYZ, the current yield is not provided, but the closing price is given as 100 and one-half.

The annual interest earned cannot be calculated without knowing the current yield.

d. ABC 7One-half; XYZ 7Three-fourths

The current yield for ABC is 7.5% (7 and one-half) and for XYZ is 8.4% (7 and three-fourths).

For ABC, the annual interest earned would be 7.5% of $100 face value, which is $7.50.

For XYZ, the annual interest earned would be 8.4% of $100 face value, which is $8.40.

Based on the given information, option d. ABC 7One-half; XYZ 7Three-fourths, provides the annual interest earned for both ABC and XYZ bonds.