Answer:
The total dollar return on this investment is $1765
Explanation:
The total dollar return on the investment by Sue is a sum of the interest earned by Sue during this period and the profit due to the increase in bid/ask price of the bond.
Interest earned = [(0.035/2) x $100,000] = $1750;
The selling price by Sue today will be the bid quote today and for the purchase price on which Sue bought the bond we will take the asked quote on purchase.
bid quote today = 124.2175
asked quote on purchase = 124.2025
Profit earned on selling = (Bid quote today - Asked quote on purchase) * $100,000
= [(124.2175 - 124.2025) x $100,000] = $15
Total return = $1750 + $15 = $1765
Answer:
total return 1,765
Explanation:
the bonds will be purcahse at ask quote (dealer is willing to sale at 124.2025
and sale at bid price (dealer purchase at 124.2175)
we also have gain the interest for the period:
principal x rate x time = interest
as the rate is annual then, time is express as the portion of a year
100,000 x 0.035 x 6/12 months = 1,750
100,000 x 124.2025 = 124,202.5 purchase price
100,000 x 124.2175 = 124,217.5 sale price
capital gain: (diffeence between sale and purchase: 15
total return 1,765
