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You buy a zero coupon bond with a face value of 19,000 that matures in 27 years for 8,000. What is your annual compound rate of return?

Solution

You buy a zero coupon bond with a face value of 19, 000 that matures in 27 years for 8, 000. What is your annual compound rate of return?

Solution

Rate : 3.25556 \dots %

Solution steps

Translate the problem into an equation:

19000 = 8000 (1 + \frac{r}{1})^{1 \cdot 27}

Solve for

r, 19000 = 8000 (1 + \frac{r}{1})^{1 \cdot 27} : r = 3.25556 \dots %

Rate : 3.25556 \dots %

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