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"A creditor provides a company with $100,000 cash by purchasing bonds at the end of Year 1. The creditor receives $6,000 in interest from the company during Year 2. The creditor sells the bonds at the end of Year 2 or $102,000. What was the rate of return generated by this investment?

Respuesta :

Answer:

rate of return is 8%

Explanation:

given data

cash = $100,000

receives interest = $6,000

sells the bonds = $102,000

to find out

rate of return

solution

we will apply here Rate of return formula that is

rate of return = [tex]\frac{I+(A1-Ao)}{Ao}[/tex]      .....................1

here I is interest receive and A1 is sells the bonds

and Ao is cash

put her all value in equation 1 we get

rate of return = [tex]\frac{6000+(102000-100000)}{100000}[/tex]

rate of return = 0.08

rate of return is 8%