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In March 2012, Daniela Motor Financing (DMF), offered somesecurities for sale to the publi

In March 2012, Daniela Motor Financing (DMF), offered somesecurities for sale to the publi

In March 2012, Daniela Motor Financing (DMF), offered somesecurities for sale to the public. Under the terms of the deal, DMFpromised to repay the owner of one of these securities $200 inMarch 2032, but investors would receive nothing until then.Investors paid DMF $100 for each of these securities; so they gaveup $100 in March 2012, for the promise of a $200 payment 20 yearslater.

a) Assuming that you purchased the bond for $100, what rate ofreturn would you earn if you held the bond for 20 years until itmatured with a value $200

b) Suppose under the terms of the bond you could redeem the bondin 2022. DMF agreed to pay an annual interest rate of .6 percentuntil that date. How much would the bond be worth at that time

c) In 2022, instead of cashing in the bond for its then currentvalue, you decide to hold the bond until it matures in 2032. Whatannual rate of return will you earn over the last 10 years?

Abhinav 03-Dec-2019

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