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 edgars 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.
please select the best answer from the choices provided
a
b
c
d

Explanation:

Step1: Calculate stock yield

$\text{Stock Yield} = \frac{\text{Annual Dividend}}{\text{Share Price}} \times 100\% = \frac{3.15}{21.38} \times 100\% \approx 14.73\%$

Step2: Calculate bond yield

$\text{Bond Yield} = \frac{\text{Annual Interest}}{\text{Market Price}} \times 100\%$
First, annual interest: $1000 \times 8.3\% = 83$
Market price per bond: $1000 \times \frac{105.166}{100} = 1051.66$
$\text{Bond Yield} = \frac{83}{1051.66} \times 100\% \approx 7.89\%$

Step3: Find yield difference

$\text{Difference} = 14.73\% - 13.68\% = 1.05\%$
The bonds have a yield 1.05 percentage points greater than that of the stocks.

Answer:

c. The bonds have a yield 1.05 percentage points greater than that of the stocks.