Question

Edgar owns 234 shares of Cawh Consolidated Bank, which he bought for $21.38 apiece. Each share pays a yearly dividend of $3.15. Edgar also owns two par value $1,000 bonds from Cawh Consolidated Bank. The bonds had a market value of 105.166 when he bought them, and pay 8.3% interest yearly. Which aspect of Edgar’s investment in Cawh Consolidated Bank offers a greater percent yield, and how much greater is it? a. The stocks have a yield 6.43 percentage points greater than that of the bonds. b. The stocks have a yield 6.84 percentage points greater than that of the bonds. c. The bonds have a yield 1.05 percentage points greater than that of the stocks. d. The bonds have a yield 9.13 percentage points higher than that of the stocks.

Answer 1

Answer: B. The stocks have a yield 6.84 percentage points greater than that of the bonds.

Step-by-step explanation:

Firstly, the yield for stocks will be calculated as:

= return/ investment cost

= $3.15/$ 21.38

= 0.14733395

= 14.73%

The yield for bonds will be calculated as:

= Return/Investment cost

Return = 1,000 x 8.3% = 83

Investment cost = 1,000 x 105.166/100 = 1051.66‬

Yield = 83/1051.66

= 0.07892284

= 7.89%

Then, the difference between the yield will be:

= 14.73% - 7.89%

= 6.84%

Therefore, the stocks have a yield 6.84 percentage points greater than that of the bonds.