Four years ago, Valero issued $5 million worth of debenture bonds having a bond interest rate of 10% per year, payable semiannually. Market interest rates dropped and the company called the bonds (i.e., paid them off in advance) at a 10% premium on the face value. What semiannual rate of return did an investor make who purchased one $5000 bond 4 years ago and held it until it was called 4 years later?

What will be an ideal response?


i* = 5000(0.10)/2
= $250 per six months

0 = -5000 + 250(P/A,i*,8) + 5,500(P/F,i*,8)

Solve for i* by trial and error or spreadsheet

i* = 6.0% per six months (spreadsheet)

Trades & Technology

You might also like to view...

What is the thickness of the web of part number 1?

Refer to the girder brace in Drawing Number W11784S R1.

Trades & Technology

?Technician A says that cylinder heads are more easily removed after warming up the engine. Technician B says that to avoid warping the head, the engine must be cold before removing it. Who is right?

A. ?Technician A only B. ?Technician B only C. ?Both A and B D. ?Neither A nor B

Trades & Technology

What happens when the nucleus of the sperm enters the egg?

What will be an ideal response?

Trades & Technology

Radial tires can cause a vehicle to pull to one side while driving. This is called "radial tire pull" and is often due to ________

A) Bead design B) Tire conicity C) Tread design D) The angle of the body (carcass) plies

Trades & Technology