Calculate the effective annual rate of return

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Reference no: EM131356048

A 10 year bond with the face value of 20,000 is offered for sale at 17,000 in the market. The nominal annual interest rate for the bond is 8%, paid quarterly. This bond is now 5 years old. You are considering the offer price $17,000.

A) Calculate the effective annual rate of return within a 3% point range when you purchase it at 17,000 and keep the bond to the maturity 5 years hence. Is that offer price 17,000 acceptable? Your MARR is 5% per year.

B) Calculate the effective annual interest rate within a 3 % point range if you purchase the bond at 16,500 instead of 17,000.

Reference no: EM131356048

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