You purchased a bond at a price of $5,000. In 30 years when the bond matures, the bond will be worth $25,000. It is exactly 24 years after you purchased the bond and you can sell the bond today for $16,000. If you hold the bond until it matures, what annual rate of return will you earn from today?

The annual rate of return will you earn from today is 7.72%

Explanation:

In order to calculate the annual rate of return will you earn from today if you hold the bond until it matures we would have to calculate the following formula:

annual rate of return = (future value/present value) ∧ (1/time) - 1

future value=$25,000

present value=$16,000

Therefore, annual rate of return = ($25,000/$16,000) ∧ (1/6) - 1

annual rate of return=7.72%

The annual rate of return will you earn from today is 7.72%