Question5-77. A bond has a face value of $\$ 1,000$, is redeemable in eight years, and pays interest of $\$ 100$ at the end of each of the eight years. If the bond can be purchased for $\$ 981$, what is the rate of return if the bond is held until maturity? (5.3) (a) $10.65 \%$ (b) $12.65 \%$ (c) $10.35 \%$ (d) $11.65 \%$

Studdy Solution
Solve for the rate of return $r$ using trial and error, interpolation, or a financial calculator capable of computing IRR.
Try different values of $r$ until the left-hand side of the equation is approximately zero.
For example, using a financial calculator or software: - Enter the cash flows: $[-981, 100, 100, 100, 100, 100, 100, 100, 1,100]$ - Compute the IRR.
The calculated IRR is approximately $10.65\%$.
The rate of return if the bond is held until maturity is:
$$\boxed{10.65\%}$$