Suppose you pay $450 for a zero-coupon bond with a face value of $500. The rate of return for this bond at maturity is:

Question

Quizplus · Accepted Answer

The rate of return can be calculated using the formula: (Face Value/Purchase Price)^(1/n) - 1, where n is the number of years until maturity.

Plugging in the values, we get: 
(500/450)^(1/1) - 1 = 0.111 or 11.1%

Therefore, the rate of return for this bond at maturity is 11.1%. The best choice is B.

Suppose You Pay $450 for a Zero-Coupon Bond with a Face