Question

Diana is trying to choose a broker who will help her purchase a par value $1,000 corporate bond from Deegan Pharmaceuticals. Broker P charges a commission of 4.4% of the market value of each bond purchased, and Broker Q charges a flat fee of $32.50 for each bond purchased. If bonds from Deegan Pharmaceuticals are selling at 104.682, which broker will give Diana the better deal, and by how much?
a.
Broker P’s commission will be $9.47 less than Broker Q’s.
b.
Broker P’s commission will be $27.89 less than Broker Q’s.
c.
Broker Q’s commission will be $13.56 less than Broker P’s.
d.
Broker Q’s commission will be $11.50 less than Broker P’s.

Answer 1

Price per bond = 1,000 × 104.682% = $1,046.82.

Broker P: 4.4% × $1,046.82 = $46.06 (≈ $46.06008).
Broker Q: $32.50.

Difference = $46.06 − $32.50 = $13.56.

So Broker Q is better by $13.56 — answer (c).