You purchase a 30-year, zero-coupon bond for a price of $20. The bond will pay back $100 after 30 years and make no interim payments. The annual compounded return (geometric average return)on this investment is

Question

Quizplus · Accepted Answer

The annual compounded return can be calculated using the formula for the compound annual growth rate (CAGR): CAGR = (Ending Value/Beginning Value)^(1/Number of Years) - 1. Here, CAGR = ($100/$20)^(1/30) - 1 = 5.51%.

You Purchase a 30-Year, Zero-Coupon Bond for a Price of $20