Multiple Choice
What is the annual percentage yield (APY) for a one-year $4,000 investment in a security that pays 5% interest compounded annually?
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7. Receivables and Investments
Introduction to Investments in Securities
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A bond with a face amount of $1,000 has a current price quote of 98.5. What is the bond's price?
A
$985
B
$1,015
C
$1,000
D
$950
Verified step by step guidance1
Step 1: Understand the concept of a bond price quote. A bond price quote is expressed as a percentage of its face value. For example, a quote of 98.5 means the bond is priced at 98.5% of its face value.
Step 2: Identify the face value of the bond, which is given as $1,000 in the problem.
Step 3: Convert the price quote percentage into a decimal by dividing it by 100. For example, 98.5% becomes 0.985.
Step 4: Multiply the face value of the bond by the decimal form of the price quote to calculate the bond's price. Use the formula: \( \text{Bond Price} = \text{Face Value} \times \text{Price Quote (Decimal)} \).
Step 5: Perform the multiplication: \( \text{Bond Price} = 1000 \times 0.985 \). This will give you the bond's price.
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