Joe Boyd is considering whether to buy stocks or bonds. The stock he is looking at is trading at $43.50 with an annual dividend of $3.60. The bond is trading at 92.125 with an annual interest rate of 8 3/4%. Can you calculate for Joe his rate of return to the nearest hundredth percent for stocks and bonds? Which is the better rate of return?

Question

Quizplus · Accepted Answer

A. Stock: $3.60/$43.50 = 8.28%; B. Bond 8.75% × $1,000 = $87.50; 92.125% × $1,000 = $921.25; $87.50/$921.25 = 9.5%.

Joe Boyd Is Considering Whether to Buy Stocks or Bonds