Thunderbolt industrial firm has issued $1,000 bonds that are guaranteed to pay $20 semiannually until the bond matures. The bonds mature 20 years from now, at which time the industrial firm will redeem them for $1,000 plus the final semiannual interest payment. From the financial pages of your newspaper you learn that the bonds may be purchased today for $715 each ($710 for the bond plus a $5 sales commission). What nominal annual rate of return would you receive if you bought the bond now and held it to maturity 20 years from now?
Question 4 options:
3.30% 

6.60% 

4.12% 

8.24% 
t = 20*2 = 40 semiannual periods
Let the semiannual ROR be i%, then
20*(P/A,i%,40) + 1000*(P/F,i%,40) = 715
Dividing by 5
4*(P/A,i%,40) + 200*(P/F,i%,40) = 143
using trail and error method
When i = 3%, value of 4*(P/A,i%,40) + 200*(P/F,i%,40) = 4*23.114772 + 200*0.306557 = 153.770456
When i = 4%, value of 4*(P/A,i%,40) + 200*(P/F,i%,40) = 4*19.792774 + 200*0.208289 = 120.828904
using interpolation
i = 3% + (153.770456143) /(153.770456120.828904)*(4%3%)
i = 3% + 0.32% = 3.32%
Nominal return = 3.32% *2= 6.64% (Approx) ~ 6.60% (second option)
Second option is correct answer
Minor diff in answer values as calculations are done by hand and upto only 6 decimal places
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