Question

You purchased a bond at a price of $13,100. In 15 years when the bond matures, the bond will be worth $30,000. It is exactly 7 years after you purchased the bond and you can sell the bond today for $21,300. 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 on the bond from today until maturity is approximately 3.26%.

Step-by-step explanation:

To calculate the annual rate of return on a bond, we need to use the formula:

Annual Rate of Return =
`(Future Value / Present Value)^((1/n)) - 1`

In this case, the Present Value (PV) is $21,300, the Future Value (FV) is $30,000, and the time period (n) is 15 years minus the 7 years you have already held the bond, which is 8 years. Substituting these values into the formula:

Annual Rate of Return =
`($30,000 / $21,300)^((1/8)) - 1`

Using a calculator, we can find that the annual rate of return will be approximately 3.26%.

Answer 2

The annual rate of return is 2.10%

Step-by-step explanation:

The computation of the annual rate of return is shown below:

Let us assume the annual rate of return be K

K is

= {Worth of the bond - selling price of the bond today)^(1 ÷ remaining time period) - 1

= [$30,000 ÷ $21,300]^(1 ÷ 8) - 1

= 2.10%

Hence, the annual rate of return is 2.10%

The same is to be considered