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12 July, 03:57

Two bonds are available on the market as follows:

Bond 1: Face value $750, y years to maturity at a (simple) interest rate of 5%.

Bond 2: Face value $500, 3 years to maturity at a (simple) interest rate of r.

Given that the total return of Bond 1 is $1,000 calculate y.

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  1. 12 July, 04:05
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    Step-by-step explanation:

    The formula for determining simple interest is expressed as

    I = PRT/100

    Where

    P represents the principal or initial amount invested.

    R represents the interest rate.

    T represents duration of the investment in years

    From the information given,

    P = $750

    R = 5%

    T = y years

    I = the total return of Bond 1 - principal

    I = 1000 - 750 = $250

    Therefore,

    250 = (750 * 5 * y) / 100

    250 = 37.5y

    y = 250/37.5

    y = 6.7 years
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