A young engineering company is a subcontractor in an effort to develop technology that will reliably detect and respond to release of anuclear weapon. The company is in need of additional funding and issues a series of $1,000 face value bonds that pay a nominal annualrate of 8% with quarterly payments. The bond matures in 6 years.Part aYour answer is correct.If you buy one bond for $905 and keep it until maturity, what is your effective annual rate of return?Click here to access the TVM Factor Table calculator.10.52 %Carry all interim calculations to 5 decimal places and then round your final answer to 2 decimal places. The tolerance is ±0.02. If you buy one bond for $905, but need to sell it immediately after the 20th interest payment for $905, what is your effectiveannual rate of return?Click here to access the TVM Factor Table calculator.%Carry all interim calculations to 5 decimal places and then round your final answer to 2 decimal places. The tolerance is ±0.02.

To calculate the effective annual rate of return, we need to determine the total cash flows received…

Answered: If you buy one bond for $905, but need…

If you buy one bond for $905, but need to sell it immediately after the 20th interest payment for $905, what is your effective annual rate of return?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Question

A young engineering company is a subcontractor in an effort to develop technology that will reliably detect and respond to release of a
nuclear weapon. The company is in need of additional funding and issues a series of $1,000 face value bonds that pay a nominal annual
rate of 8% with quarterly payments. The bond matures in 6 years.
Part a
Your answer is correct.
If you buy one bond for $905 and keep it until maturity, what is your effective annual rate of return?
Click here to access the TVM Factor Table calculator.
10.52 %
Carry all interim calculations to 5 decimal places and then round your final answer to 2 decimal places. The tolerance is ±0.02.

If you buy one bond for $905, but need to sell it immediately after the 20th interest payment for $905, what is your effective
annual rate of return?
Click here to access the TVM Factor Table calculator.
%
Carry all interim calculations to 5 decimal places and then round your final answer to 2 decimal places. The tolerance is ±0.02.

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