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Calculating the required rate of return in the given cases

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Referring to the TMCC Security who promised to repay $100,000 in 30 years for a loan of $24,099 on March 28, 2008.

a. Based on the $24,099 price, what rate was TMCC paying to borrow money?
b. Suppose that, on March 28, 2020, this security's price is $38,260. If an investor had purchased it for $24,099 at the offering and sold it on this day, what annual rate of return would she have earned?
c. If an investor had purchased the security at market on March 28, 2020, and held it until it matured, what annual rate of return would she have earned?

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The solution calculates the rate of return in the given cases.

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Please refer attached file for better clarity of formulas.

a. Based on the $ 24,099 price, what rate was TMCC paying to borrow money?
Loan amount=PV=$24,099
Repayment amount=FV=$100,000
Number of ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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