The current price of a government bond is $920. The bond pays $90 in interest this year. At the end of the current year, the bond matures, and the principal of $1,000 is repaid. What is the return to the holder of this bond?

Question

Quizplus · Accepted Answer

The return is calculated by adding the interest received ($90) to the principal repayment ($1,000), which totals $1,090. This amount is then compared to the initial investment of $920. The return is ($1,090 - $920) / $920 = $170 / $920 = 0.1848, or 18.48%, which is closest to 17 percent when rounded to the nearest whole number.

The Current Price of a Government Bond Is $920