Making the assumption of no compounding interest, suppose you purchase a perpetuity bond from Lateralus Inc. for $ 4 , 000 with an annual coupon rate of 3 % . Specify all answers to the nearest dollar, and assume a discount rate equal to that of the current interest rate. What is the yearly return on your $ 4 , 000 investment

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Answer:

$120

Explanation:

Data provided as per the given question below:-

Investment = $4,000

Coupon rate in percentage = 3%

The computation of yearly return is shown below:-

Yearly return = Investment × Coupon rate in percentage

= $4,000 × 3%

= $120

Therefore for computing the yearly return we simply investment with coupon rate in percentage.

The additional sum of money over the principal sum of deposit or loan is called compound interest.

The yearly return on $ 4 ,000 investment will be $120.

This can be estimated as:

  • Investment = $4,000

  • Coupon rate in percentage = 3%

The computation of yearly return can be estimated as:

[tex]\text{Yearly return} = \text{Investment} \times \text{Coupon rate in percentage}[/tex]

= $4,000 × 3%

= $120

Therefore for computing the annual return we simply fund with coupon rate in percentage.

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