Explanation Given: A bond with the face value, P = $ 1 , 000 . Rate of interest r = 5.3 % . Number of term is t = 6 years. An investor bought this with the principal amount, P = 1 , 145 . The commission with the rate of interest, r = 1 % . Calculation: Obtain the percent return on investment. Compute the simple interest to obtain the value at maturity. Substitute the values of P = $ 1 , 000 , r = 5.3 % and t = 6 in I = Pr t and compute the simple interest, I = 1000 ( 0.053 ) ( 6 ) = 318 Therefore, the simple interest is $318. The value at maturity is computed as follows, The principal amount + The simple interest = 1000+318 = 1318 Therefore, the value at maturity is $1,318. Compute the profit for the owner. The profit for the owner = The seeling price - The principal price = 1145-1000 = 145 Therefore, the profit for the owner is $145. Compute the profit for the buyer. From the given, an investor bought the bond with the principal amount P = 1 , 145 and the commission with the rate of interest r = 1 % . 1 % = 1 100 = 0

3rd Edition

ISBN: 9780073519678

Author: David Sobecki Professor, Allan G. Bluman

Publisher: McGraw-Hill Education

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The percent return on investment and percent return per year.

Solution Summary: The author explains that the percent return on investment is 14% and the percentage return per year is 4.2%.

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