A bond is a kind of security below which the issuer owes the holder a debt, and is obliged relying at the phrases to pay off the principal of the bond at the adulthood date as properly as interest over a special quantity of time.
The required details for bond in given paragraph
Selling price of bonds 920
Add: Annual interest 54
Total amount received 974
Less: Invested 890
Total Dollar returns 84
Total Dollar returns 84
Divide: Invested amount 890
Nominal ratee of return 9.44%
Real rate of return = (1+ Nominal rate) / (1+ Inflation rate) -1
1.0944 /1.03 - 1 = 6.25%
Bonds and shares are both securities, however the predominant distinction among the 2 is that stockholders have an equity stake in a business enterprise while bondholders have a creditor stake in a business enterprise. As creditors, bondholders have precedence over stockholders. This way they'll be repaid earlier of stockholders, however will rank behind secured creditors, within side the occasion of bankruptcy.
Another distinction is that bonds generally have a described time period, or adulthood, and then the bond is redeemed, while shares commonly stay exceptional indefinitely. An exception is an irredeemable bond, that's a perpetuity, that is, a bond with out a adulthood.
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