The rate of return of a bond Introduction: Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment. The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

Question

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Answer 1

Question

Chapter 5, Problem 16QP

a)

Summary Introduction

To calculate: The rate of return of a bond

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

a)

Expert Solution

Answer to Problem 16QP

A bond with a face value of $50 would double its value in 20 years if the rate of return is 3.53%.

Explanation of Solution

Given information:

Person X purchased a bond worth $50. He plans to hold it for 20 years until the value of the bond doubles.

The formula to calculate the rate of return:

P×(1+r)t=FV

Where,

“P” refers to the principal amount invested

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

“FV” refers to the future value or the current market value

Compute the rate of return:

The present value of the bond is $50. He plans to invest for 20 years until the value of the bond doubles. Hence, the future value of the bond will be $100 ($50×2) .

P×(1+r)t=FV$50×(1+r)20=$100(1+r)20=$100$50(1+r)20=2

1+r=2120r=1.0353−1r=0.0353 or 3.53%

Hence, the rate of return is 3.53% per year.

b)

Summary Introduction

To calculate: The future value of the bond

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

b)

Expert Solution

Answer to Problem 16QP

The value of the bond in 2024 will be $50.5.

Explanation of Solution

Given information:

Person X will purchase a bond worth $50 in 2014. He plans to hold it until 2024 or for 10 years. The rate of interest on the bond is 0.10 percent per year.

The formula to calculate the future value:

FV=PV×(1+r)t

Where,

“FV” refers to the future value or the current market value

“PV” refers to the present value

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

Compute the future value:

FV=PV×(1+r)t=$50×(1+0.001)10=$50×1.0100=$50.5

Hence, the future value of investment after 10 years is $50.5.

c)

Summary Introduction

To calculate: The rate of return

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

c)

Expert Solution

Answer to Problem 16QP

The bond has to fetch a return of 7.18% per year to double its value in 2034.

Explanation of Solution

Given information:

Person X purchased a bond worth $50 in 2014. He plans to hold it until 2024 or for 10 years. The rate of interest on the bond is 0.10 percent per year. The future value of this bond in 2024 will be $50.50 (Refer to Part (b) of the solution). Instead of cashing the bond at $50.50, he plans to reinvest the bond value until the value of the bond doubles in 2034.

The formula to calculate the rate of return:

P×(1+r)t=FV

Where,

“P” refers to the principal amount invested

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

“FV” refers to the future value or the current market value

Compute the rate of return:

The present value of the bond is $50.50 in 2024. He plans to invest for 10 years until the value of the bond doubles in 2034. Hence, the future value of the bond will be $101 ($50.50×2) .

P×(1+r)t=FV$50.50×(1+r)10=$101(1+r)10=$101$50.50(1+r)10=2

1+r=2110r=1.0718−1r=0.0718 or 7.18%

Hence, the bond has to fetch a return of 7.18% per year to double its value in 2034.

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Answer 2

Question

Chapter 5, Problem 16QP

a)

Summary Introduction

To calculate: The rate of return of a bond

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

a)

Expert Solution

Answer to Problem 16QP

A bond with a face value of $50 would double its value in 20 years if the rate of return is 3.53%.

Explanation of Solution

Given information:

Person X purchased a bond worth $50. He plans to hold it for 20 years until the value of the bond doubles.

The formula to calculate the rate of return:

P×(1+r)t=FV

Where,

“P” refers to the principal amount invested

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

“FV” refers to the future value or the current market value

Compute the rate of return:

The present value of the bond is $50. He plans to invest for 20 years until the value of the bond doubles. Hence, the future value of the bond will be $100 ($50×2) .

P×(1+r)t=FV$50×(1+r)20=$100(1+r)20=$100$50(1+r)20=2

1+r=2120r=1.0353−1r=0.0353 or 3.53%

Hence, the rate of return is 3.53% per year.

b)

Summary Introduction

To calculate: The future value of the bond

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

b)

Expert Solution

Answer to Problem 16QP

The value of the bond in 2024 will be $50.5.

Explanation of Solution

Given information:

Person X will purchase a bond worth $50 in 2014. He plans to hold it until 2024 or for 10 years. The rate of interest on the bond is 0.10 percent per year.

The formula to calculate the future value:

FV=PV×(1+r)t

Where,

“FV” refers to the future value or the current market value

“PV” refers to the present value

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

Compute the future value:

FV=PV×(1+r)t=$50×(1+0.001)10=$50×1.0100=$50.5

Hence, the future value of investment after 10 years is $50.5.

c)

Summary Introduction

To calculate: The rate of return

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

c)

Expert Solution

Answer to Problem 16QP

The bond has to fetch a return of 7.18% per year to double its value in 2034.

Explanation of Solution

Given information:

Person X purchased a bond worth $50 in 2014. He plans to hold it until 2024 or for 10 years. The rate of interest on the bond is 0.10 percent per year. The future value of this bond in 2024 will be $50.50 (Refer to Part (b) of the solution). Instead of cashing the bond at $50.50, he plans to reinvest the bond value until the value of the bond doubles in 2034.

The formula to calculate the rate of return:

P×(1+r)t=FV

Where,

“P” refers to the principal amount invested

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

“FV” refers to the future value or the current market value

Compute the rate of return:

The present value of the bond is $50.50 in 2024. He plans to invest for 10 years until the value of the bond doubles in 2034. Hence, the future value of the bond will be $101 ($50.50×2) .

P×(1+r)t=FV$50.50×(1+r)10=$101(1+r)10=$101$50.50(1+r)10=2

1+r=2110r=1.0718−1r=0.0718 or 7.18%

Hence, the bond has to fetch a return of 7.18% per year to double its value in 2034.

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Answer 3

Question

Chapter 5, Problem 16QP

a)

Summary Introduction

To calculate: The rate of return of a bond

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

a)

Expert Solution

Answer to Problem 16QP

A bond with a face value of $50 would double its value in 20 years if the rate of return is 3.53%.

Explanation of Solution

Given information:

Person X purchased a bond worth $50. He plans to hold it for 20 years until the value of the bond doubles.

The formula to calculate the rate of return:

P×(1+r)t=FV

Where,

“P” refers to the principal amount invested

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

“FV” refers to the future value or the current market value

Compute the rate of return:

The present value of the bond is $50. He plans to invest for 20 years until the value of the bond doubles. Hence, the future value of the bond will be $100 ($50×2) .

P×(1+r)t=FV$50×(1+r)20=$100(1+r)20=$100$50(1+r)20=2

1+r=2120r=1.0353−1r=0.0353 or 3.53%

Hence, the rate of return is 3.53% per year.

b)

Summary Introduction

To calculate: The future value of the bond

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

b)

Expert Solution

Answer to Problem 16QP

The value of the bond in 2024 will be $50.5.

Explanation of Solution

Given information:

Person X will purchase a bond worth $50 in 2014. He plans to hold it until 2024 or for 10 years. The rate of interest on the bond is 0.10 percent per year.

The formula to calculate the future value:

FV=PV×(1+r)t

Where,

“FV” refers to the future value or the current market value

“PV” refers to the present value

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

Compute the future value:

FV=PV×(1+r)t=$50×(1+0.001)10=$50×1.0100=$50.5

Hence, the future value of investment after 10 years is $50.5.

c)

Summary Introduction

To calculate: The rate of return

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

c)

Expert Solution

Answer to Problem 16QP

The bond has to fetch a return of 7.18% per year to double its value in 2034.

Explanation of Solution

Given information:

Person X purchased a bond worth $50 in 2014. He plans to hold it until 2024 or for 10 years. The rate of interest on the bond is 0.10 percent per year. The future value of this bond in 2024 will be $50.50 (Refer to Part (b) of the solution). Instead of cashing the bond at $50.50, he plans to reinvest the bond value until the value of the bond doubles in 2034.

The formula to calculate the rate of return:

P×(1+r)t=FV

Where,

“P” refers to the principal amount invested

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

“FV” refers to the future value or the current market value

Compute the rate of return:

The present value of the bond is $50.50 in 2024. He plans to invest for 10 years until the value of the bond doubles in 2034. Hence, the future value of the bond will be $101 ($50.50×2) .

P×(1+r)t=FV$50.50×(1+r)10=$101(1+r)10=$101$50.50(1+r)10=2

1+r=2110r=1.0718−1r=0.0718 or 7.18%

Hence, the bond has to fetch a return of 7.18% per year to double its value in 2034.

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Answer 4

Question

Chapter 5, Problem 16QP

a)

Summary Introduction

To calculate: The rate of return of a bond

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

a)

Expert Solution

Answer to Problem 16QP

A bond with a face value of $50 would double its value in 20 years if the rate of return is 3.53%.

Explanation of Solution

Given information:

Person X purchased a bond worth $50. He plans to hold it for 20 years until the value of the bond doubles.

The formula to calculate the rate of return:

P×(1+r)t=FV

Where,

“P” refers to the principal amount invested

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

“FV” refers to the future value or the current market value

Compute the rate of return:

The present value of the bond is $50. He plans to invest for 20 years until the value of the bond doubles. Hence, the future value of the bond will be $100 ($50×2) .

P×(1+r)t=FV$50×(1+r)20=$100(1+r)20=$100$50(1+r)20=2

1+r=2120r=1.0353−1r=0.0353 or 3.53%

Hence, the rate of return is 3.53% per year.

b)

Summary Introduction

To calculate: The future value of the bond

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

b)

Expert Solution

Answer to Problem 16QP

The value of the bond in 2024 will be $50.5.

Explanation of Solution

Given information:

Person X will purchase a bond worth $50 in 2014. He plans to hold it until 2024 or for 10 years. The rate of interest on the bond is 0.10 percent per year.

The formula to calculate the future value:

FV=PV×(1+r)t

Where,

“FV” refers to the future value or the current market value

“PV” refers to the present value

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

Compute the future value:

FV=PV×(1+r)t=$50×(1+0.001)10=$50×1.0100=$50.5

Hence, the future value of investment after 10 years is $50.5.

c)

Summary Introduction

To calculate: The rate of return

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

c)

Expert Solution

Answer to Problem 16QP

The bond has to fetch a return of 7.18% per year to double its value in 2034.

Explanation of Solution

Given information:

Person X purchased a bond worth $50 in 2014. He plans to hold it until 2024 or for 10 years. The rate of interest on the bond is 0.10 percent per year. The future value of this bond in 2024 will be $50.50 (Refer to Part (b) of the solution). Instead of cashing the bond at $50.50, he plans to reinvest the bond value until the value of the bond doubles in 2034.

The formula to calculate the rate of return:

P×(1+r)t=FV

Where,

“P” refers to the principal amount invested

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

“FV” refers to the future value or the current market value

Compute the rate of return:

The present value of the bond is $50.50 in 2024. He plans to invest for 10 years until the value of the bond doubles in 2034. Hence, the future value of the bond will be $101 ($50.50×2) .

P×(1+r)t=FV$50.50×(1+r)10=$101(1+r)10=$101$50.50(1+r)10=2

1+r=2110r=1.0718−1r=0.0718 or 7.18%

Hence, the bond has to fetch a return of 7.18% per year to double its value in 2034.

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Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 5, Problem 16QP

a)

Summary Introduction

To calculate: The rate of return of a bond

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

a)

Expert Solution

Answer to Problem 16QP

A bond with a face value of $50 would double its value in 20 years if the rate of return is 3.53%.

Explanation of Solution

Given information:

Person X purchased a bond worth $50. He plans to hold it for 20 years until the value of the bond doubles.

The formula to calculate the rate of return:

P×(1+r)t=FV

Where,

“P” refers to the principal amount invested

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

“FV” refers to the future value or the current market value

Compute the rate of return:

The present value of the bond is $50. He plans to invest for 20 years until the value of the bond doubles. Hence, the future value of the bond will be $100 ($50×2) .

P×(1+r)t=FV$50×(1+r)20=$100(1+r)20=$100$50(1+r)20=2

1+r=2120r=1.0353−1r=0.0353 or 3.53%

Hence, the rate of return is 3.53% per year.

b)

Summary Introduction

To calculate: The future value of the bond

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

b)

Expert Solution

Answer to Problem 16QP

The value of the bond in 2024 will be $50.5.

Explanation of Solution

Given information:

Person X will purchase a bond worth $50 in 2014. He plans to hold it until 2024 or for 10 years. The rate of interest on the bond is 0.10 percent per year.

The formula to calculate the future value:

FV=PV×(1+r)t

Where,

“FV” refers to the future value or the current market value

“PV” refers to the present value

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

Compute the future value:

FV=PV×(1+r)t=$50×(1+0.001)10=$50×1.0100=$50.5

Hence, the future value of investment after 10 years is $50.5.

c)

Summary Introduction

To calculate: The rate of return

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

c)

Expert Solution

Answer to Problem 16QP

The bond has to fetch a return of 7.18% per year to double its value in 2034.

Explanation of Solution

Given information:

Person X purchased a bond worth $50 in 2014. He plans to hold it until 2024 or for 10 years. The rate of interest on the bond is 0.10 percent per year. The future value of this bond in 2024 will be $50.50 (Refer to Part (b) of the solution). Instead of cashing the bond at $50.50, he plans to reinvest the bond value until the value of the bond doubles in 2034.

The formula to calculate the rate of return:

P×(1+r)t=FV

Where,

“P” refers to the principal amount invested

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

“FV” refers to the future value or the current market value

Compute the rate of return:

The present value of the bond is $50.50 in 2024. He plans to invest for 10 years until the value of the bond doubles in 2034. Hence, the future value of the bond will be $101 ($50.50×2) .

P×(1+r)t=FV$50.50×(1+r)10=$101(1+r)10=$101$50.50(1+r)10=2

1+r=2110r=1.0718−1r=0.0718 or 7.18%

Hence, the bond has to fetch a return of 7.18% per year to double its value in 2034.

Answer 6

Chapter 5, Problem 16QP

a)

Summary Introduction

To calculate: The rate of return of a bond

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

a)

Expert Solution

Answer to Problem 16QP

A bond with a face value of $50 would double its value in 20 years if the rate of return is 3.53%.

Explanation of Solution

Given information:

Person X purchased a bond worth $50. He plans to hold it for 20 years until the value of the bond doubles.

The formula to calculate the rate of return:

P×(1+r)t=FV

Where,

“P” refers to the principal amount invested

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

“FV” refers to the future value or the current market value

Compute the rate of return:

The present value of the bond is $50. He plans to invest for 20 years until the value of the bond doubles. Hence, the future value of the bond will be $100 ($50×2) .

P×(1+r)t=FV$50×(1+r)20=$100(1+r)20=$100$50(1+r)20=2

1+r=2120r=1.0353−1r=0.0353 or 3.53%

Hence, the rate of return is 3.53% per year.

Answer 7

Chapter 5, Problem 16QP

a)

Summary Introduction

To calculate: The rate of return of a bond

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

Answer 8

a)

Expert Solution

Answer to Problem 16QP

A bond with a face value of $50 would double its value in 20 years if the rate of return is 3.53%.

Answer 9

a)

Expert Solution

Answer 10

a)

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Given information:

Person X purchased a bond worth $50. He plans to hold it for 20 years until the value of the bond doubles.

The formula to calculate the rate of return:

P×(1+r)t=FV

Where,

“P” refers to the principal amount invested

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

“FV” refers to the future value or the current market value

Compute the rate of return:

The present value of the bond is $50. He plans to invest for 20 years until the value of the bond doubles. Hence, the future value of the bond will be $100 ($50×2) .

P×(1+r)t=FV$50×(1+r)20=$100(1+r)20=$100$50(1+r)20=2

1+r=2120r=1.0353−1r=0.0353 or 3.53%

Hence, the rate of return is 3.53% per year.

Answer 13

b)

Summary Introduction

To calculate: The future value of the bond

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

b)

Expert Solution

Answer to Problem 16QP

The value of the bond in 2024 will be $50.5.

Explanation of Solution

Given information:

Person X will purchase a bond worth $50 in 2014. He plans to hold it until 2024 or for 10 years. The rate of interest on the bond is 0.10 percent per year.

The formula to calculate the future value:

FV=PV×(1+r)t

Where,

“FV” refers to the future value or the current market value

“PV” refers to the present value

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

Compute the future value:

FV=PV×(1+r)t=$50×(1+0.001)10=$50×1.0100=$50.5

Hence, the future value of investment after 10 years is $50.5.

Answer 14

b)

Summary Introduction

To calculate: The future value of the bond

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

Answer 15

b)

Expert Solution

Answer to Problem 16QP

The value of the bond in 2024 will be $50.5.

Answer 16

b)

Expert Solution

Answer 17

b)

Expert Solution

Answer 18

Expert Solution

Answer 19

Explanation of Solution

Given information:

Person X will purchase a bond worth $50 in 2014. He plans to hold it until 2024 or for 10 years. The rate of interest on the bond is 0.10 percent per year.

The formula to calculate the future value:

FV=PV×(1+r)t

Where,

“FV” refers to the future value or the current market value

“PV” refers to the present value

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

Compute the future value:

FV=PV×(1+r)t=$50×(1+0.001)10=$50×1.0100=$50.5

Hence, the future value of investment after 10 years is $50.5.

Answer 20

c)

Summary Introduction

To calculate: The rate of return

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

c)

Expert Solution

Answer to Problem 16QP

The bond has to fetch a return of 7.18% per year to double its value in 2034.

Explanation of Solution

Given information:

Person X purchased a bond worth $50 in 2014. He plans to hold it until 2024 or for 10 years. The rate of interest on the bond is 0.10 percent per year. The future value of this bond in 2024 will be $50.50 (Refer to Part (b) of the solution). Instead of cashing the bond at $50.50, he plans to reinvest the bond value until the value of the bond doubles in 2034.

The formula to calculate the rate of return:

P×(1+r)t=FV

Where,

“P” refers to the principal amount invested

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

“FV” refers to the future value or the current market value

Compute the rate of return:

The present value of the bond is $50.50 in 2024. He plans to invest for 10 years until the value of the bond doubles in 2034. Hence, the future value of the bond will be $101 ($50.50×2) .

P×(1+r)t=FV$50.50×(1+r)10=$101(1+r)10=$101$50.50(1+r)10=2

1+r=2110r=1.0718−1r=0.0718 or 7.18%

Hence, the bond has to fetch a return of 7.18% per year to double its value in 2034.

Answer 21

c)

Summary Introduction

To calculate: The rate of return

Introduction:

Rate of return refers to the gain or loss on the investment. It also refers to the increase or decrease in the capital value of an investment.

The future value of money refers to the amount of dollars that an investment grows over a definite period at a particular rate of interest rate. In other words, it refers to the future value of present cash investments.

Answer 22

c)

Expert Solution

Answer to Problem 16QP

The bond has to fetch a return of 7.18% per year to double its value in 2034.

Answer 23

c)

Expert Solution

Answer 24

c)

Expert Solution

Answer 25

Expert Solution

Answer 26

Explanation of Solution

Given information:

Person X purchased a bond worth $50 in 2014. He plans to hold it until 2024 or for 10 years. The rate of interest on the bond is 0.10 percent per year. The future value of this bond in 2024 will be $50.50 (Refer to Part (b) of the solution). Instead of cashing the bond at $50.50, he plans to reinvest the bond value until the value of the bond doubles in 2034.

The formula to calculate the rate of return:

P×(1+r)t=FV

Where,

“P” refers to the principal amount invested

“r” refers to the simple rate of interest

“t” refers to the number of years or periods of investment

“FV” refers to the future value or the current market value

Compute the rate of return:

The present value of the bond is $50.50 in 2024. He plans to invest for 10 years until the value of the bond doubles in 2034. Hence, the future value of the bond will be $101 ($50.50×2) .

P×(1+r)t=FV$50.50×(1+r)10=$101(1+r)10=$101$50.50(1+r)10=2

1+r=2110r=1.0718−1r=0.0718 or 7.18%

Hence, the bond has to fetch a return of 7.18% per year to double its value in 2034.

Answer 27

Ch. 5.1 - Prob. 5.1ACQ Ch. 5.1 - Prob. 5.1BCQ Ch. 5.1 - Prob. 5.1CCQ Ch. 5.2 - Prob. 5.2ACQ Ch. 5.2 - Prob. 5.2BCQ Ch. 5.2 - What do we mean by discounted cash flow, or DCF,...Ch. 5.2 - Prob. 5.2DCQ Ch. 5.3 - Prob. 5.3ACQ Ch. 5.3 - Prob. 5.3BCQ Ch. 5 - You deposited 2,000 in a bank account that pays 5...

Answer to Problem 16QP

Explanation of Solution

Answer to Problem 16QP

Explanation of Solution

Answer to Problem 16QP

Explanation of Solution

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