A $10,000 mortgage bond with a bond interest rate of 8% per year, payable quarterly, was purchased for $9200. The bond was kept until it was due, a total of 7 years. What rate of return was made by the purchaser per 3 months and per year (nominal)?
What will be an ideal response?
= 10,000(0.08)/4 = $200 per quarter
0 = -9200 + 200(P/A,i*,28) + 10,000(P/F,i*,28)
Solve for i* by trial and error or spreadsheet RATE function
i* = 2.4% per quarter (RATE)
Nominal i* per year = 2.4(4) = 9.6% per year
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