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14 June, 12:15

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

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  1. 14 June, 15:31
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    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%
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