While you buy a bond, you're loaning cash to both a government and a corporation. whilst these entities first difficulty the bonds, they're bought at "par", which means you lend, say, $a hundred, and at the adulthood of the bond, you'll acquire $100 lower back. at the time of the difficulty, the coupon charge is also set, primarily based on modern-day interest quotes and the entity's credit score. This determines the yearly or semiannual quantity you will acquire when buying the bond.
A bond can be bought on the secondary market before adulthood. however, the price of this bond will promote greater than par (i.e. a premium) if present-day interest quotes decrease than what they had been while the bond was issued and less than par if interest fees have gone up (i.e. a reduction).
An example, a bond is issued these days, maturing in 10 years with an annual coupon of five%. In 5 years, hobby fees have risen to 7%, so someone shopping for the bond with a five% coupon would demand a discount at the face price (in any other case, they could just buy the 7% bond at par).
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Someone who is retiring has more experience on what to invest in than someone who is still getting used to knowing what to invest in
When bonds are sold to investors, the government benefits because it gets an injection of cash, while the purchaser benefits because in a few years it will have accrued interest.
Answer:
e. 14.20%
Explanation:
We use the formula:
A=P(1+r/100)^n
where
A=future value
P=present value
r=rate of interest
n=time period.
Hence
A=$450(1.1)^2+$450(1.1)^1+$450
=$450[(1.1)^2+(1.1)+1]
=$1489.50
Hence
MIRR=[Future value of inflows/Present value of outflows]^(1/time period)-1
=[1489.5/1000]^(1/3)-1
=14.20%(Approx)
