A firm has issued $1,000 bonds with a 3% coupon interest rate paid semi-annually. The bonds mature 10 years from now and may be purchased for $800 each. What effective annual rate of return would you receive if you purchased the bond now and held it to maturity 10 years from now

5.72%

Explanation:

Calculation for the effective annual rate of return

First step is to find the rate using financial calculator

Number of years = 10*2 = 20

Present value =PV = -800

PMT = [3%/2] * 100 = 15

FV = 1000

Using financial calculator we are going to press the CPT then the I/Y which will gives us 2.82% as the rate

Hence,

Periodic Rate = 2.82%

Last step is to calculate the effective annual rate of return

Using this formula

Effective Annual Rate = [1 + Periodic Rate]^Number of compounding periods in a year - 1

Let plug in the formula

Effective Annual Rate = [1 + 0.0282]^2 - 1

Effective Annual Rate = 1.0572 - 1

Effective Annual Rate = 0.0572 *100

Effective Annual Rate =5.72%

Therefore the effective annual rate of return will be 5.72%

The expenses that Jordan can deduct is $3,731.

This is the amount that she can deduct as business expenses for this trip from New York to Denver.

Data and Calculations:

Expenses incurred on the trip for both business and private purposes:

Lodging   3,200

Meals         800

Total      $4,000

Travel days = 2 days

Business days = 9 days

Visiting friends = 5 days

Total days spent conducting business and visiting friends = 14 days

Business portion of the above expenses = 9/14

Amount to be deducted as business expenses is calculated as follows:

Portion of the above total expense =     $2,571 ($4,000 ( 9/14)

Airfare                                                            520

Entertainment of clients =                            640

Total amount that Jordan can deduct = $3,731

Thus, Jordan can deduct $3,731 of her expenses for the business trip.

Learn more about deductible business trip expenses here: