Question

Pierce wishes to purchase a municipal bond with a par value of $500 from Chattahoochee County, and he is trying to decide which broker he should employ to purchase the bond. Broker A charges a 3.1% commission on the market value of each bond sold. Broker B charges a flat $24 for each bond sold. If the bond has a market rate of 88.754, which broker will give Pierce the better deal, and by how much?
a.
Broker B’s commission will be $9.75 less than Broker A’s.
b.
Broker B’s commission will be $3.51 less than Broker A’s.
c.
Broker A’s commission will be $13.76 less than Broker B’s.
d.
Broker A’s commission will be $10.24 less than Broker B’s.

Answer 1

Market value = 500(0.88754) = $443.77.

Broker A: 3.1% of 443.77 = 0.031(443.77) = $13.7569 ≈ $13.76.
Broker B: flat $24.

Broker A’s commission is $24 − $13.7569 = $10.2431 ≈ $10.24 less than Broker B’s.

Answer: d.