Math Problem Statement
Calculate one year returns on a bond that has a term of 5 years, a face value of $7000, offers a coupon rate of 10% and the market rate is 8%. The rate of return is: 16.62% 18.92% 12.45% 15.15%
Solution
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Math Problem Analysis
Mathematical Concepts
Bond Valuation
Present Value of Cash Flows
Rate of Return Calculation
Formulas
Present value of a bond: P = Σ (C / (1 + r)^t) + (FV / (1 + r)^n)
Rate of return = (Coupon Payment + Price Change) / Initial Price
Theorems

Suitable Grade Level
College/University Level
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