Question

Question 1 10 pts A 10-year, 11.00%, $2,000 bond that pays dividends quarterly can be purchased for $1,869. This means that $1,869 is spent on the bond now. Every quarter, $55.00 is provided to the purchaser as the dividend. After 10 years, $2,000 is given to the purchaser. If the bond is purchased and pays as scheduled, which of the following ranges of effective rate of return will the purchaser receive? 0 11.50% - 11.85% 0 11.00% - 11.50% 0 13.11% - 15.11% 0 12.10% - 13.10%

Answer 1

The Effective Return for the Purchaser will be between 12.10% to 13.10%.

The Issue Price considering Effective Rate of around 12.10% is coming to around $ 1,870 and Issue Price considering Effective Rate of 13.10% is coming to around $ 1,770.

Laying emphasis on the above observation, it can be said that effective interest range will be around 12.10% to 13.10%.