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21 October, 05:57

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?

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  1. 21 October, 06:11
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    The stocks yields 14.73% per year

    the bonds yields 7.89% per year

    The stock provide a better yield, which is 6.84% greater than bonds yield

    Explanation:

    the return will be calculate as follow:

    return / investment cost

    stocks

    return 3.15 dividends

    cost 21.38 each stock

    yield:

    3.15 / 21.38 = 0,14733395 = 14.73%

    bonds

    return: cuopon payment 1,000 x 8.3% = 83

    cost : market value 1,000 x 105.166/100 = 1,051.66‬

    yield:

    83/1051.66 = 0,07892284 = 7.89%

    Difference:

    stocks 14.73 - bonds 7.89 = 6.84
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