During recessionary periods, bonds that were issued many years ago have a higher coupon rate than currently issued bonds. Therefore, they may sell at a premium, a price higher than their face value, because of currently low coupon rates. A $50,000 bond that was issued 15 years ago is for sale for $60,000. What rate of return per year will a purchaser make if the bond coupon rate is 14% per year, payable annually, and the bond is due 5 years from now? Write the ROR equation and use a single-cell spreadsheet function to display the correct answer directly.
What will be an ideal response?
During recessionary periods, bonds that were issued many years ago have a higher coupon
rate than currently issued bonds. Therefore, they may sell at a premium, a price higher than
their face value, because of currently low coupon rates. A $50,000 bond that was issued 15
years ago is for sale for $60,000. What rate of return per year will a purchaser make if the
bond coupon rate is 14% per year, payable annually, and the bond is due 5 years from now?
Write the ROR equation and use a single-cell spreadsheet function to display the correct
answer directly.
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