Question

Mark has invested in evu confectioners. he owns 220 shares of stock in evu confectioners, with each share costing him $14.79 apiece but paying a yearly dividend of $2.03. mark also owns three par value $500 bonds from evu confectioners, each of which had a market value of 93.630 and which pay 8.8% interest. if mark’s broker charges a commission of $55 per ten shares of stock bought or sold and a commission of 3% of the market value of each bond bought or sold, which aspect of mark’s investment in evu confectioners has the greater percent yield, and how much greater is it?​

Answer 1

Based on the returns on both the stock and bonds, we can find that stocks have a greater percentage yield by 0.88%.

Return on Stock

= Dividend on stock / ( Cost of stock + Commission) x 100%

Commission is:

= 55/ 10

= $5.50 per share

Return is therefore:

= 2.03/ (14.79 + 5.5) x 100%

= 10%

Return on Bonds

= Interest earned / (Market value of bonds + Commission) x 100%

Interest earned:

= 8.8% x 500 x 3 bonds

= $132

Market value of bonds:

= 0.93630 x 500 x 3 bonds

= $1,404.45

Commission:

= 3% x 1,404.45

= $42.1335

Return on bonds is:

= 132 / (1,404.45 + 42.1335) x 100%

= 9.12%

Difference in return

= 10% - 9.12

= 0.88%

In conclusion, stock has a higher yield by 0.88%.