AnswersSpring 2026 Financial Math - MA2007 MQS21QXVBuying Bonds

Stocks vs. Bonds Answers

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1
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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?

A
The stocks have a yield 4.33 percentage points greater than that of the bonds.
B
The stocks have a yield 0.88 percentage points greater than that of the bonds.
C
The bonds have a yield 0.32 percentage points greater than that of the stocks.
D
The bonds have a yield 3.68 percentage points greater than that of the stocks.
2
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What is the largest difference in stocks and bonds?

A
Bonds are a binding contract, promising the holder a portion of the company's annual profit, unless it is unprofitable, while stocks are a very standard investment and pay off a predetermined amount after a period of time.
B
Stocks are a share of ownership in a company and give the stockholder voting rights, while bonds are similar to lending a company or government money.
C
Stocks are the most secure of all investments and bonds are some of the least secure.
D
Bonds are available to the public, while stocks are reserved for the financial elite.
3

Four years ago, Sam invested in Grath Oil. She bought three of its $1,000 par value bonds at a market price of 93.938 and with an annual coupon rate of 6.5%. She also bought 450 shares of Grath Oil stock at $44.11, which has paid an annual dividend of $3.10 for each of the last ten years. Today, Grath Oil bonds have a market rate of 98.866 and Grath Oil stock sells for $45.55 per share. Use the scenario above to select the best answer.

A
It is equally likely that the company would suspend paying interest on the bonds and dividends on the stock.
B
Both the coupon rate and the dividend rate are fixed and cannot change.
C
The bonds showed a higher percentage return than that of the stocks.
D
The amount of money received annually in interest (on the bonds) and in dividends (on the stocks) depends on the current market prices.
4

Frances bought 144 shares of Dwyn Horticulture for $7.73 apiece. Her broker charged her a commission of $46.15 for the purchase. If the yearly dividend on Dwyn Horticulture is 61 cents per share, what is the annual yield on Frances’s stock?

A
0.0758
B
0.0789
C
0.0132
D
0.0320
5

Which of the following statements about length of investment is correct?

A
Bonds tend to be better long-term investments than stocks because bonds are unlikely to lose their value.
B
Stocks tend to be better long-term investments than bonds because bonds do not have the same growth potential that stocks do.
C
Bonds tend to be better long-term investments than stocks because bonds, unlike stocks, are guaranteed to keep up with inflation.
D
Stocks tend to be better long-term investments than bonds because stocks can be bought and sold more readily than bonds.
6

Five years ago, Benjamin invested in Parchar Special Effects. He purchased four par value $1,000 bonds from Parchar Special Effects at a market rate of 96.230. Each bond had an interest rate of 7.2%. Benjamin also purchased 200 shares of stock in the same company, each of which cost $19.08 and had a yearly dividend of $2.04. Today, bonds from Parchar Special Effects have a market rate of 104.595, and stock in Parchar Special Effects costs $22.62. If Benjamin liquidates his portfolio and sells all of his investments, which aspect of his investment will have yielded him a greater total profit, and how much greater is it?

A
The bonds yielded $940.20 more in profits than the stocks.
B
The bonds yielded $33.00 more in profits than the stocks.
C
The stocks yielded $373.20 more in profits than the bonds.
D
The stocks yielded $973.40 more in profits than the bonds.
7

Sandra owns a bond issued by Animite Energy with a par value of $1,000. The bond pays 7.6% interest yearly and has a market rate of 93.411 when Sandra bought it. What is the current yield on Sandra’s bond?

A
0.076
B
0.074
C
0.081
D
0.089
8

What does it mean that stocks and bonds are relatively liquid?

A
They are easier to buy and sell than other forms of investment.
B
They tend to go up and down in value.
C
The amount of income they can bring changes frequently.
D
There are more of them to choose from than other forms of investment.
9

Why does the government issue only bonds, while companies issue both stocks and bonds?

A
The US government does not involve itself in the stock market because it does not want to risk losing money if there should ever be a crash in the stock market.
B
Because the stock market is used as a form of gambling, the government refuses to associated itself with the stock market as a way to discourage gambling.
C
Stock in a company gives the holder part-ownership of the company, with voting rights on big decisions, and profits when the value goes up. The people already vote on happenings in the government and inherently have ownership of the government.
D
A stock is a part ownership in a company, and the leaders of the government won’t have the people owning the government.
10

Cheryl wants to purchase a par value $500 bond from Agram Imports. Agram Imports bonds have a market rate of 102.114 and offer 8.1% interest. If Cheryl’s broker charges a commission of 2.5% of the market value of each bond sold, what is the current yield on Cheryl’s bond?

A
0.077
B
0.078
C
0.081
D
0.040

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