Advanced Algebra

What is the rate of return on a $10,000 bond purchased at $8,750 with a 10% coupon?

The 10% coupon guarantees a return of $1,000 on the nominal value of the bond, which is $10,000. The bond's actual sale price was $8,750, so the $1,000 coupon must be figured as a percent of $8,750. 1000 / 8750 = 11.43%

My answer is 11.43%

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  1. Even though you don't say, I will assume the time was 1 year.

    so look at this way:
    you started with 8750 and at the end of the year you had 10,000+ 1,000 or 11,000

    8750(1+r) = 11000
    1+r = 1.25714..
    r = .25714 or 25.71%

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  2. OP is right, it IS 11.43%

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