A young engineering company is a subcontractor in an effort to develop technology that will reliably detect and respond to release of a

nuclear weapon. The company is in need of additional funding and issues a series of $$1,000$ face value bonds that pay a nominal annual

rate of $8\%$ with quarterly payments. The bond matures in $6$ years.

Part a

Your answer is correct.

If you buy one bond for $$905$ and keep it until maturity, what is your effective annual rate of return?

Click here to access the TVM Factor Table calculator.

$\%$

Carry all interim calculations to $5$ decimal places and then round your final answer to $2$ decimal places. The tolerance is $+-0\mathrm{.}02.$

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Hint

$P$ is the purchase price of a bond, $P=$$$905.$

$F$ is the sales price of a bond, $F=$$$1,000.$

$V$ is the face value of a bond, $V=$$$1,000.$

$r$ is the nominal annual rate compaunded quarterly. Note that $r$ needs to be a decimal if using mathematical formula, $r=0\mathrm{.}08$

for $8\%.$

$m$ is the number of quarters in a year, $m=4$ quarters.

$n$ is the number of years of bond maturity, $n=6$ years.

This problem can be solved by using a tabulated factor provided in Appendix A or by using Excel ${?}^{}$ function.

Part b

Your answer is incorrect.

If you buy one bond for $$905,$ but need to sell it immediately after the ${20}^{th}$ interest payment for $$905,$ what is your effective

annual rate of return?

Click here to access the TVM Factor Table calculator.

$\%$

Carry all interim calculations to $5$ decimal places and then round your final answer to $2$ decimal places. The tolerance is $+-0\mathrm{.}02.$