Question

sakara co bonds are selling in the market for $700 these 11 year bonds pay 12% interest annually on $1000 par value if they are purchased a market price what is the expected rate of return

Answer 1

• Answer = expected rate of return = 17.14 percentage .
• Expected rate of return on bond is termed as the interest rate , at which present value of bond equals to future cash flows .
• So , its calculated by discounting future cash flows to the present time .

here , given values in the question are as below :

Market price : $700

Par value : $1000

Interest : 12 percent

Its 11 years bond .

the equation for finding expected rate of return ,

= interest rate / ( market price / par value )

= 12 percent / ( 700 / 1000 )

= 12  / 0.7

= 17.14 percentage.

Thus, expected rate of return of bond = 17.14 percentage .

so, if the bond is purchased at market price of $700 , its expected rate of return is 17.14 percentage .

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