A $9,000 bond matures in 10 years and pays 2 percent interest twice a year. If the bond sold for $7,000, what is the annual actual investment rate? a. IRR = 7.15%% b. IRR = 5.10% c. IRR = 3.58% d. IRR = 6.23%

A $9,000 bond matures in 10 years and pays 2 percent interest twice a year. If the bond sold for $7,000, what is the annual actual investment rate? a. IRR = 7.15%% b. IRR = 5.10% c. IRR = 3.58% d. IRR = 6.23%

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 2P

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Concept explainers

Bond Valuation

Bond valuation are the notes issued by the corporation to raise long-term funds for the business. The corporations are required to pay the interest on such liabilities at a specified rate of interest (termed as coupon rate) at specified dates which may be on semi-annual or annual basis. These interest payments may be in the form of coupons.

Question

A $9,000 bond matures in 10 years and pays 2 percent interest twice a year. If the bond sold for $7,000, what is the annual actual investment rate?

IRR = 7.15%%

IRR = 5.10%

IRR = 3.58%

IRR = 6.23%

Definition Definition Discount rate of a project wherein its net present value equals zero. Internal rate of return equates the present value of future cash flows with the initial investments. Internal rate of return helps to determine nominal cash flows.

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