You bought a bond five years ago for $904 per bond. The bond is now selling for $870. It also paid $70 in interest per year, which you reinvested in the bond.

You bought a bond five years ago for $904 per bond. The bond is now selling for $870. It also paid $70 in interest per year, which you reinvested in the bond. Calculate the realized rate of return earned on this bond. (Do not round intermediate calculations. Round your percentage answer to 2 decimal places. (e.g., 32.16))

Solution

Let realized rate of return be x%

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At this rate;present value of interest and future value=904

904=70/1.0x+70/1.0x^2+………+70/1.0x^5+870/1.0x^5

Hence x=realized rate of return=7.09%(Approx).