Question

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?

Answer 1

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

Step-by-step 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%