Question

You purchase a 30-year, zero-coupon bond for a price of $25. The bond will pay back $100 after

30 years and make no interim payments. The annual compounded return (geometric average
return) on this investment is ________.
A) 4.49%
B) 5.68%
C) 4.02%
D) 4.73%

Answer 1

annual compounded return = 4.73 %

so correct option is D) 4.73%

Step-by-step explanation:

given data

present value = $25

future value = $100

time = 30 year

to find out

annual compounded return

solution

we get here annual compounded return that is express as

annual compounded return =
`((FV)/(PR) )^{(1)/(t)} - 1` ............1

here t is time period and FV is future value and PV is present value

so put here all value in equation 1 we get

annual compounded return =
`((100)/(25) )^{(1)/(30)} - 1`

annual compounded return = 0.047294

annual compounded return = 4.73 %

so correct option is D) 4.73%