A mortgage bond issued by Automation Engineering is for sale for $8200. The bond has a face value of $10,000 with a coupon rate of 8% per year, payable annually. What rate of return will be realized if the purchaser holds the bond to maturity 5 years from now?
What will be an ideal response?
0 = -8200 + 10,000(0.08)(P/A,i*,5) + 10,000(P/F,i*,5)
Solve by trial and error or IRR function
i* = 13.1% per year (spreadsheet)
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