Ask Question
2 July, 17:33

g one of your friends purchased a zero coupon corporate bond (i. e., a bond that has no interest payments) for $4,850. The bond has a face value of $25,000 and is due in 16 years. If the bond is held to maturity, what rate of return will your friend make on the investment?

+4
Answers (1)
  1. 2 July, 19:11
    0
    The rate of return on the investment is 10.79% per year

    Explanation:

    The rate of return on the bond can be calculated using the future value formula, which is given as:

    FV=PV * (1+r) ^N

    FV future value is the value of investment at redemption at $25000

    PV is the current price of the bond now at $4,850

    r is the rate of return on the bond which is unknown

    N is th number of years the bond matures which is 16 years

    25000=4,850 * (1+r) ^16

    divide both sides by 4850

    (25000/4850) = (1+r) ^16

    divide the exponential on both sides by 16

    (25000/4850) ^1/16=1+r

    1.107930178 = 1+r

    r=1.107930178 - 1

    r=0.10793

    r=10.79%
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “g one of your friends purchased a zero coupon corporate bond (i. e., a bond that has no interest payments) for $4,850. The bond has a face ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers