Answer :
Answer:
7.50%
Explanation:
The formula to solve this problem is stated below.
[tex]p=\frac{A(1-(1+r)^{-n} }{r} + \frac{F}{(1+r)^{n} }[/tex]
where p = price paid = $10,000
A = annual coupon payment = $750
n = tenor = 5 years
F = face value paid at maturity = $10,000
r, the unknown = rate of return.
Using extrapolation, the value of r that resolves the problem = 7.5%. The is expected since the price of the bond is the same as face value. As such, the rate of return was the same as [tex]\frac{A}{p}=\frac{750}{10,000}[/tex] = 7.5%.
[tex]10,000=\frac{750(1-(1.075)^{-5} }{0.075} + \frac{10,000}{(1.075)^{5} }[/tex].