If a United States Savings bond can be purchased for $14.60 and has a maturity value at the end of 25 years of $100, what is the annual rate of return on the bond?

Question

Quizplus · Accepted Answer

To find the annual rate of return, we need to use the formula:

Annual rate of return = (Maturity value/Purchase price)^(1/years) - 1

Plugging in the given values, we get:

Annual rate of return = ($100/$14.60)^(1/25) - 1 
Annual rate of return = (6.8493)^(0.04) - 1 
Annual rate of return = 1.08 - 1

Therefore, the annual rate of return on the bond is 8 percent.

If a United States Savings Bond Can Be Purchased for $14.60