What is the expected rate of return on a bond that matures in7 years, has a par

Question

What is the expected rate of return on a bond that matures in7 years, has a par value of $1,000, a coupon rate of 14%, and iscurrently selling for $911? Round your answer to the nearest wholepercent, and assume annual coupon payments.
a. 15% b. 14% c. 2% d. 16% What is the expected rate of return on a bond that matures in7 years, has a par value of $1,000, a coupon rate of 14%, and iscurrently selling for $911? Round your answer to the nearest wholepercent, and assume annual coupon payments.
a. 15% b. 14% c. 2% d. 16%

Explanation / Answer

7 years

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Face Value (or) ParValue of the Bond $1,000 Annual Coupon Rate 14% Present Bond Value $911 Number of years toMaturity

7 years

Expected Rate of Return on theBond

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Calculating Expected Rate ofReturn: (Using Ms-Excel "RATE"Function) Number of Periods (Nper) 7 Annual Coupon Payment (PMT)[$1000*14%] -$140.00 Present Value of the Bond(PV) $911.00 Future Value of the Bond(FV) -$1,000.00 Expected Rate of Return on abond (Rate) 16.2% Answer is Option (d)16%

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