What is the rate of return on a $12,500 bond purchased at $10,750 with a 15% coupon?
Mathematics · High School · Mon Jan 18 2021
Answered on
Given:
$12,500 bond purchased at $10,750 with a 15% coupon.
Determine the rate of return.
Solution:
In order to determine the rate of return, we simply needed to subtract 10750 to 12500, then divide the difference by 10750.
= $12,500 - $10,750
= $1750
= $1,750/$10,750
= 0.1628
Since we are given a decimal answer, in order to convert it into percentage, we multiply the decimal by 100. Hence, in converting a percentage into decimal, we divide the percentage by 100.
= (0.1628)(100)
= 16.28%
Final answer:
The rate of return is 16.28%