Problem Solving

A bond pays 6 percent simple interest annually on its par value. if a buyer wishes an annual return of 8 percent on her money. How much should she pay for a bond with a par value of $ 600 ?

a.288
b.360
c.450
d.528
e.588

Answer: A
thanx for help...

A buyer would receive 600*6% = 36 return for her purchase if she were satisfied with the 6% return. She is however looking for an 8% return on her invested money, which is actually the money she is willing to spend on the bond. Let's say that this amount is x. She wants back 8% of x or 0.08x. This 0.08x is made up of the 36 she receives in interest PLUS the difference between the par value and the price she pays (which is again x). In order for her to get a greater return from her investment that the par value, x will have to be less than the par value (this is why you have a positive difference between par value and x). This can be "translated" into an equation:
0.08x = 36 + (600 - x)
1.08x = 636
x = 636/1.08 = smth around 588.

So my answer would be E.

Let me explain why A is impossible: I've noticed that GMAT questions are pretty darn realistic about interest rates and such. Buying a bond at less than half its par value (288 versus 600) is absolutely outrageous and will seldom happen in real life (maybe if the company that issued the bond is almost bankrupt or smth like that).

sorry the correct answer is C. (450)

Alpturk wrote:A bond pays 6 percent simple interest annually on its par value. if a buyer wishes an annual return of 8 percent on her money. How much should she pay for a bond with a par value of $ 600 ?

a.288
b.360
c.450
d.528
e.588

Answer: A
thanx for help...

What is the source of this question??
Is it GMAT question.

yes this is a gmat question. from gmat plus.

This should not be difficult

I = Prt

Hence,
I = 600*6/100 = 36

Now let us say she put's in x money, Hence

8/100*x=36 i.e on the money she put in the Interest should be equal to 36.

Hence x= 450.

Thinking back is she pays 450 for a bond with a par value of 600 then she gets the return of 8% i.e 36 which is the same as the return of 6% on 600.

rocket science....
anyone please explaing the questions

I really don't know the answer of the question...!!