# finance

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If you purchased a zero coupon bond today for \$225 and it maturity value is \$1,000 in 11 years, what rate of return will you earn on that bond?

• finance -

P = M/(1 + r)^n
P = price
M = maturity value
r = investor's required annual yield/2
n = number of years to maturity x 2

225 = 1000/(1 + r/2)^22
225(1 + r/2)^22 = 1000
(1 + r/2)^22 = 4.4444
take the 22nd root of each side
1 + r/2 = 1.07015
r/2 = 0.07015
r = .1403
r = 14%

check my math
Online calculators come up with a cost of 236.62 versus 225.00

Close enough because of rounding.

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