Table 1 shows two bonds offered through an online financial market. A bond is a loan made by investors to an organisation. Table 1 (a) Calculate the annual ...

Assessment: Economics 9214 | Paper 1 Mock 01 | Written Paper 1 Subject: Economics - 9214

Question 1 Report

Table 1 shows two bonds offered through an online financial market. A bond is a loan made by investors to an organisation.

Table 1


(a) Calculate the annual interest paid on a $2000 investment in Bond A. [1]
(b) Which bond offers the higher annual percentage return? [1]
(c) Explain one possible reason why Bond B has a higher interest rate. [1]

Answer Details

(a) The table containing the bond rates is not visible in the supplied question text, but the mark scheme identifies Bond A’s rate as 4%. Annual interest is:

\[\$2000\times\frac{4}{100}=\$80\]

Annual interest on Bond A is $80 [1].

(b) Bond B [1] offers the higher annual percentage return, according to the supplied table and mark scheme.

(c) Bond B may pay a higher interest rate because the new firm has a greater risk of failing to repay investors, or its profits are less certain [1]. Investors generally require a higher return as compensation for accepting higher risk.

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