Question
In March 2012, Daniela Motor Financing (DMF), offered some securities for sale to the public. Under the terms of the deal, DMF promised to repay
In March 2012, Daniela Motor Financing (DMF), offered some securities for sale to the public. Under the terms of the deal, DMF promised to repay the owner of one of these securities $350 in March 2047, but investors would receive nothing until then. Investors paid DMF $175 for each of these securities; so they gave up $175 in March 2012, for the promise of a $350 payment 35 years later. a. Assuming that you purchased the bond for $175, what rate of return would you earn if you held the bond for 35 years until it matured with a value $350? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Rate of return % b. Suppose under the terms of the bond you could redeem the bond in 2022. DMF agreed to pay an annual interest rate of .7 percent until that date. How much would the bond be worth at that time? (Do not round intermediate calculations. Round your answer to 2 decimal places, e.g., 32.16.) Bond value $ c. In 2022, instead of cashing in the bond for its then current value, you decide to hold the bond until it matures in 2047. What annual rate of return will you earn over the last 25 years? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Rate of return %
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