Question

"A creditor provides a company with $100,000 cash by purchasing bonds at the end of Year 1. The creditor receives $6,000 in interest from the company during Year 2. The creditor sells the bonds at the end of Year 2 or $102,000. What was the rate of return generated by this investment?

Answer 1

rate of return is 8%

Step-by-step explanation:

given data

cash = $100,000

receives interest = $6,000

sells the bonds = $102,000

to find out

rate of return

solution

we will apply here Rate of return formula that is

rate of return =
`(I+(A1-Ao))/(Ao)` .....................1

here I is interest receive and A1 is sells the bonds

and Ao is cash

put her all value in equation 1 we get

rate of return =
`(6000+(102000-100000))/(100000)`

rate of return = 0.08

rate of return is 8%