Question

Please use the same information (as follows) to answer this question.

Face Value of the bond:       $10,000

Interest Rate:   10% (per year)

Maturity:                            4 years from today

Current Price Index:            120

1. If you decided to buy this bond at the current market price, what is the amount of annual interest you will receive?  Please do not put "$" or "," in your answer. If your answer is $12,345.67, put 12346 for your answer.

2. If you decided to buy this bond at the current market price, what is the rate (%) of return on your investment (ROI)? If necessary, round your answer to the first decimal point

Answer 1

1. For interest purpose price is irrelevant whether you buy such bond on current market price or on Face Value, interest will always be calculated on Face value of Bond , thus if it is decided to buy bond on current market price the interest will be same 10000*10%= 1000

2. Return on Investment (ROI) is a performance measure used to evaluate the efficiency of an investment or compare the efficiency of a number of different investments. ROI tries to directly measure the amount of return on a particular investment, relative to the investment’s cost. To calculate ROI, the benefit (or return) of an investment is divided by the cost of the investment. The result is expressed as a percentage.
ROI = (Current Value of investment - Cost of investment)/ cost of investment

1000/12000*100 = 8.3%