Tom purchased a bond last year for $1240, received $60 in interest return, and sold the bond for $1300 one year later. What is Tom's realized annual rate of return?

Question

Quizplus · Accepted Answer

Tom's realized annual rate of return is calculated by adding the interest received to the capital gain, then dividing by the initial investment. The capital gain is $1300 - $1240 = $60. The total return is $60 (interest) + $60 (capital gain) = $120. The rate of return is $120 / $1240 = 0.0968, or approximately 9.7%.

Tom Purchased a Bond Last Year for $1240, Received $60