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Sasha Y.
Financial Algebra
3 days, 22 hours ago
If Pat pays 15,334.65 for a 25,000 face-value, zero-coupon bond that matures in 8 years, what is his annual rate of return?
Chapter 6
Exponential and Logarithmic Functions
Section 7
Financial Models
So in this problem Pat pays 15,000 $334 And 65 cents for a 25,000 face value, zero coupon bond Matures in eight years and we'll know what the annual rate of return is. Okay well think about this. This is the present value. That's what he's paying today. This is a future value. That's what he's going to get. This is the end and I'm looking for the I. R. Looking for that return. Well so future value is present value times one plus I to the end our formulas. So a future right 25,000 Is Present Value 15 3 34 65. I was one plus I to the eighth. Okay So divide by the 15 3 34 65. So 25,000 Divided by 15 3 34 0.65. And I get 1.63 oh 29 479 is one plus I to the eighth. Take the 18 power. In other words the eighth route of both sides. And what do we get? Get? 1.63 is one plus I attract 10.63. Yes I and so are average and your return is 6.3 percent
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