Question

Zero-Coupon Bonds If Pat pays \(12,485.52 for a \)25,000 face-value, zero-coupon bond that matures in 8 years, what is his annual rate of return?

Short answer

The annual rate of return is 9.07% compounded annually.

Step-by-step solution

Step 1. Given Information

If Pat pays $12,485.52 for a $25,000 face-value, zero-coupon bond that matures in 8 years, we have to find his annual rate of return.

$$\begin{gathered} P=12,485.52 \\ A=\$25,000 \\ n=1 \\ t=8 \\ r=? \end{gathered}$$