Posted by **C.J.** on Saturday, June 6, 2009 at 7:44pm.

A zero-coupon bond matures for $1,000 in exactly 12 years' time. If you paid $385.63 today for the bond, what average yearly rate of return will you earn?

- Math/Economics -
**Anonymous**, Saturday, June 6, 2009 at 8:42pm
I don't think I am right, but $83.33 or 32.13 I am b=not sure

- Math/Economics -
**MathMate**, Saturday, June 6, 2009 at 8:45pm
Let r=interest rate

385.63*(1+r)^{12}=1000

(1+r)^{12} = 1000/385.63 = 2.5932

Solve for 1+r and calculate r as the interest rate.

Quick check:

Rule of 72 says that money invested at r% will double in 72/r years (approximately).

Since the investment has more than doubled in 12 years, the interest rate should be *more* than 72/12=6%.

In fact, it is over 8%.

Post your results if you want to check.

## Answer This Question

## Related Questions

- Finance 200 - . If you purchase a zero coupon bond today for $225 and it matures...
- fINANCE - If you purchase a zero coupon bond today for 225 and it matures at ...
- finance - If you purchased a zero coupon bond today for $225 and it maturity ...
- Finance - Zeta Corporation has issued a $1,000 face value zero-coupon bond. ...
- Corporate Finance - The yield-to-maturity on a bond is the interest rate you ...
- Finance - Bond value and time--Constant required returns Pecos Manufacturing has...
- Fianance - A tax-exempt bond was recently issued at an annual 8 percent coupon ...
- math - A man buys a corporate bond from a bond brokerage house for $925. The ...
- Finance - Heinz Corporation bonds carry a coupon of 8% and will mature in 5 ...
- Finance - Heinz Corporation bonds carry a coupon of 8% and will mature in 5 ...

More Related Questions