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Timothy bought a bond with a face value of $1,000. The bond term is 1 year. He bought the bond at a 5 percent discount from the face value. The bond pays 5 percent annual interest, and Timothy will receive two semiannual payments. When the bond is redeemed at maturity, the total return (profit) will be $ .00. The total return on investment will be %. (Round return on investment percentage to one decimal place.)

Respuesta :

Answer:

100, 10.5

Explanation:

1000 x .95= 950

1000x1.05=1050

1050-950= 100

100/950= 10.5

anthougo

1. When the bond is redeemed at maturity, the total return (profit) for Timothy will be $100.00.

2. The total return on investment will be 10.5%.

What is the return on bonds?

The return on bonds is the profit gained from the purchase of the bonds.  

The profit includes all the capital gains (discount received) and interest revenues received until maturity.

Data ad Calculations:

Face value = $1,000

Purchase price = $950 ($1,000 x 1 - 5%)

Discount = $50 ($1,000 - $950)

Maturity period = 1 year

Coupon rate = 5%

Interest payment = semi-annual

Annual interest = $50 ($1,000 x 5%)

Total profit at maturity = $100 ($50 + $50)

Total return on investment = 10.5% ($100/$950 x 100)

Thus, when the bond is redeemed at maturity, the total return (profit) for Timothy will be $100.00 at 10.5%.

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