Scott T. answered • 10/17/12

Math and Science Tutoring from an MIT Masters in Engineering

Hi Jackie,

Your question is a little difficult to understand, so I'll give you my best interpretation of it. It looks like Abby is buying bonds with a face value of $1000 and a coupon rate of 11.75% at a cost of $900 each (at a premium). She is going to buy NINE of these bonds, and she is charged $9 for each purchase.

a) The total cost of her purchase is: Number of Bonds * (Cost of the Bond + Commission per bond)

That is, the cost is: 9 * ( 900.00 + 9.00) = 9 (909.00) = $8181.

So for the first part, **a) Total cost $= 8181.**

b) A coupon rate of 11.75% means the bond pays 11.75% of its face value per year, so we can figure out the annual interest earned.

Multiply the number of bonds (9) by the face value ($1000) times the coupon rate (11.75%):

9*$1000* (.1175) = $1057.50

**(b) Total annual interest $= 1057.50**

c) Current yield is the face value ($1000) times the coupon rate (11.75%) divided by the current price ($900). Since the bond is selling for less than face value, the current yield is higher than the coupon rate:

Current yield = 1000*.1175/900 = 13.1%

**(c) Current yield %= 13.1**

If you like my answer, please take a moment to vote for it, thanks!

Scott T.

Hi Jackie,

I wonder if the 11.75% is the coupon rate for your bond? Do you see anything that references a "face value" or "clean price" for the bond?

It seems like this is more of a finance question than a math question, but we should be able to get to the bottom of it.

10/17/12

Jackie K.

YES THE FACE VALUE IS 1000 IM SO SORRY I FORGOT TO ADD10/17/12

Scott T.

Hi Jackie,

The face value of $1000 makes sense, but then I'm wondering if the price is $90.00. This would be pretty unusual! Are you sure the price is $90.00?

Also, that 11.75% number, does the problem say that this is a coupon rate?

Thanks!

Scott

10/17/12

Jackie K.

NO IT DOES NOT10/17/12

Scott T.

10/17/12

Jackie K.

thank you sooo much i understand now .... I do I rate you Im a newbie10/17/12

Scott T.

Glad I could help - I think you have a chance to click the Thumbs Up, and maybe because you asked the question you can also choose the best answer. I'm actually not sure myself because I just discovered this whole question/answer thing too !

Cheers~

10/17/12

Jackie K.

HI, MR. SCOTT I HAVE CORRECTED THE WORD PROBLEM AND THANK YOU FOR YOUR HELP

10/17/12