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Jim wants to start investing in bonds. He checks with two brokers to ask them for suggestions of bonds to buy. Broker J, who charges a commission of 3.6% of the market value of all bonds sold, recommends for Jim to buy three par value $500 bonds from the city of Danville, a par value $1,000 bond from Raxin Accounting, and two par value $1,000 bonds from United Rotators. Danville bonds are selling at 114.212, Raxin Accounting bonds are selling at 79.941, and United Rotators bonds are selling at 102.844. Broker K, who charges a fee of $28 for each bond sold, recommends that Jim buy five par value $500 bonds from Fort Bend County, a par value $1,000 bond from the U.S. Treasury, and two par value $500 bonds from Iwad Records. Fort Bend bonds are selling at 91.090, Treasury bonds are selling at 101.163, and Iwad Records bonds are selling at 107.252. Based on the current information, which broker’s bond package will cost Jim less money up front, and how much less will it cost him? a. Broker J’s suggestion will cost Jim $59.57 less than Broker K’s suggestion. b. Broker J’s suggestion will cost Jim $62.00 less than Broker K’s suggestion. c. Broker K’s suggestion will cost Jim $148.57 less than Broker J’s suggestion. d. Broker K’s suggestion will cost Jim $208.07 less than Broker J’s suggestion. Please select the best answer from the choices provided A B C D

Respuesta :

Answer: C

Explanation:

Broker K's suggestion will cost Jim $148.57 less than Broker J's suggestion

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Answer:

C) Broker K’s suggestion will cost Jim $148.57 less than Broker J’s suggestion.

Explanation:

Broker J: 3.6% commission plus

  • 3 par value bonds $500 x 114.212% = $1,713.18
  • 1 par value bond $1,000 x 79.941% = $799.41
  • 2 par value bonds $1,000 x 102.844% = $2,056.88

Jim total investment = ($1,713.18 + $799.41 + $2,056.88) x 1.036 = $4,733.97

Broker K: $28 per bond plus

  • 5 par value bonds $500 x 91.090% = $2,277.25
  • 1 par value bond $1,000 x 101.163% = $1,011.63
  • 2 par value bonds $500 x 107.252% = $1,072.52

Jim total investment = $2,277.25 + $1,011.63 + $1,072.52 + (8 x $28) = $4,585.40

Broker J's offer - broker K's offer = $4,733.97 - $4,585.40 = $148.57

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