You purchased a bond at a price of $2,100. In 30 years when the bond matures, the bond will be worth $15,000. It is exactly 22 years after you purchased the bond and you can sell the bond today for $11,100. If you hold the bond until it matures, what annual rate of return will you earn from today

The answer is 3.8%

Explanation:

Solution

Bond purchased at price = $2100)

Maturity rate in 30 years worth = $15,000

Sale of the bond = $11,100

Now we find out what annual rate of return will you earn from today

Now

present value = $11,100

Future value = $15,000

Bond Life = 8 years (30-22)

The annual rate of return = [ (FV/PV) ^ (1/n) - 1]

= (15000/111000^ (1/8) - 1

=1.351351^ (1/8) - 1

= 3.8%

Therefore the annual; rate of return you will earn from today is 3.8%