You purchased a bond at a price of $1,700. In 20 years when the bond matures, the bond will be worth $10,000. It is exactly 13 years after you purchased the bond and you can sell the bond today for $6,700. If you hold the bond until it matures, what annual rate of return will you earn from today

Question

Brook

Business

11 May, 21:41

You purchased a bond at a price of $1,700. In 20 years when the bond matures, the bond will be worth $10,000. It is exactly 13 years after you purchased the bond and you can sell the bond today for $6,700. If you hold the bond until it matures, what annual rate of return will you earn from today

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Answers (1)

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Paul Boyd · Answer 1

Annual rate of return which will be earned from today is 5.89%

Explanation:

FV = PV (1+r) ^n

r is int Rate per anum abd n is balance period

10000 = 6700 (1 + r) ^n

10000 = 6700 (1 + r) ^7

(1 + r) ^7 = 10000 / 6700

= 1.4925

1+r = 1.4925^ (1/7)

= 1.0589

r = 1.0589 - 1

= 0.0589 i. e 5.89%