What is the rate of return on a $5,000 bond purchased at $4,750 with a 12% coupon?
1 answer:
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Answer:
8.4 dollars
Step-by-step explanation:
The error is in the resolution of the proportion. In fact, the initial proportion is correct:
where x is the total cost. However, the following step of the resolution is wrong. In fact, the correct resolution is the following:
- Multiplying by x on both sides:
- Multiplying by 3.5 no both sides:
And now we can find x:
So, the total cost is 8.4 dollars.