A mortgage bond issued by Automation Engineering is for sale for $8,200. The bond has a face value of $10,000 with a coupon rate of 11% per year, payable monthly. What rate of return will be realized if the purchaser holds the bond to maturity 8 years from now

Question

Janae Conway

Engineering

15 July, 10:49

A mortgage bond issued by Automation Engineering is for sale for $8,200. The bond has a face value of $10,000 with a coupon rate of 11% per year, payable monthly. What rate of return will be realized if the purchaser holds the bond to maturity 8 years from now

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Deja Flynn · Answer 1

Person will get interest of 11% on 10000 that is 1100 per year or 91.66 per month.

The future value of this annuity interest at 11% is 14014 after 8 years.

After 8 years he will also get 10000

Total amount he will be getting after 8 years

= 10000 + 14014

= 24014

Annualised return with initial investment of 8200 with return of 24014 after 8 years, turns out to be 14.38 %