Stock in Ombor Medical Supplies earns a return of 5.3% annually, while bonds issued by Ombor Medical Supplies earns a return of 4.1% annually. If you invest a total of $2,400 in Ombor Medical Supplies, $1,400 of which is in bonds and $1,000 of which is in stocks, which side of the investment will show a greater return after six years, and how much greater will it be?
Answer
A
The stocks will earn $55.60 more than the bonds.
B
The stocks will earn $118.60 more than the bonds.
C
The bonds will earn $82.00 more than the stocks.
D
The bonds will earn $26.40 more than the stocks.
Explanation
Using simple annual returns, calculate each investment’s earnings over six years. The stocks earn $1,000 × 0.053 × 6 = $318.00, while the bonds earn $1,400 × 0.041 × 6 = $344.40. The bonds therefore earn $344.40 − $318.00 = $26.40 more, so the bonds will earn $26.40 more than the stocks.
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