Question

Step 1

Step1: Calculating the value of rate of return on the investment in the bond. We have,

The relationship between present value and future value of money is explained by the following equation:

Future value = Present Value (1+r)^{n }

Here,

Present Value = $ 75

Future value = $ 150

Number of years (n) = 16 years

Rate of return(r) =?

By substituting these value in the above formula. We get;

$ 150 = $ 75 (1+r)^{16 }

(1+r)^{16 }= $ 150 / $ 75

(1+r)^{16 }= 2

(1+r) = (2)^{1/16 }

(1 + r) = 1.0443

r = 1.0443 – 1

r = 0.0443 x 100

r= 4.43 %

Therefore the value of rate of return on the investment in the bond shall be 4.43%.

Step 2

Step2: Calculating the future value of the bond in the year 2025. We have,

The relationship between present value and future value of money is explained by the following equation:

Future value = Present Value (1+r)n

Here,

Present Value = $ 75

Future value =?

Number of years (n) = 8 years

Rate of return(r) = 0.21%

By substituting these ...

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