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Chapter 5: Q. 66 (page 326)

Zero-Coupon Bonds If Pat pays \(12,485.52 for a \)25,000 face-value, zero-coupon bond that matures in 8 years, what is his annual rate of return?

Short Answer

Expert verified

The annual rate of return is 9.07% compounded annually.

Step by step solution

01

Step 1. Given Information

If Pat pays $12,485.52 for a $25,000 face-value, zero-coupon bond that matures in 8 years, we have to find his annual rate of return.

$P = 12, 485.52 A = $ 25, 000 n = 1 t = 8 r = ?$

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