Camille purchased a bond 5 years ago for $1,050.The bond paid $50 in annual interest and returned the $1,000 principal at the end of the fifth year.Camille used the interest payment to pay for college textbooks.

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The bond's total return over 5 years is $250 ($50 per year), plus the return of the $1,000 principal. The total amount received is $1,250. The initial investment was $1,050. The internal rate of return is less than 5% because the total return over 5 years is less than what would be expected if the return were exactly 5% annually on the initial investment.

Camille Purchased a Bond 5 Years Ago for $1,050