If a zero-coupon bond with a face value of $1,000 costs $800, then the rate of return if held to maturity would be

Question

Quizplus · Accepted Answer

The rate of return can be calculated using the formula:
Rate of return = (Face value/Purchase price)^(1/years held) -1
In this case, the face value is $1,000 and the purchase price is $800, so:
Rate of return = ($1,000/$800)^(1/1) -1 = 0.25 or 25%
Therefore, the answer is D, 25 percent.

If a Zero-Coupon Bond with a Face Value of $1,000