Answer:
13%
Explanation:
The rate of return is the amount of interest paid on the left-over which is yet to be paid off the money being borrowed.
Thus, the periodic payment can be computed as:
[tex]I = \dfrac{Vb}{c}[/tex]
Given that;
The bond face value V = $10,000
The coupon rate b = 8% per year = 0.08
Then, the periodic payment can be calculated as:
[tex]I = \dfrac{10000\times 0.08}{1}[/tex]
I = $800
Thus, the annual cashflow = $800
By using the Excel formula, we can then determine the rate of return realized if the purchaser holds the bond to maturity 5 years from now.
Using the Excel function =IRR(A1:A6)
The rate of return is calculated to be 13%
