Bonds

An engineer planning for his child’s college education purchased a zero coupon corporate bond (i .e., a bond that has no interest payments) for $9250. The bond has a face value of $50,000 and is due in 18 years.

If the bond is held to maturity, what rate of return will the engineer make on the investment?

A collateral bond with a face value of $5000 was purchased by an investor for $4100. The bond was due in II years, and it had a bond interest rate of 4% per year, payable semiannually.

If the investor kept the bond to maturity, what rate of return per semiannual period did she make?

Solution:

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