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Rate of Return on Securities

On April 21, 2006, Toyota Motor Credit Corporation (TMCC), a subsidiary of Toyota Motors, offered some securities for sale to the public. Under the terms of the deal, TMCC promised to repay the owner of one of these securities $10,000 on April 23, 2036, but investors would receive nothing until then. Investors paid TMCC $1,163 for each of these securities; so they gave up $1,163 on April 21, 2006, for the promise of a $10,000 payment 30 years later. (Do not include the percent sign (%). Round your answers to 2 decimal places, e.g. 32.16.) :

a. Based upon the $1,163 price, TMCC was paying a rate of percent to borrow money.

b. Suppose that, on April 21, 2015, this security's price was $6,400. If an investor had purchased it for $1,163 at the offering and sold it on this day, she would have earned an annual rate of percent.

c. If an investor had purchased the security at market on April 21, 2015, and held it until it matured, she would have earned an annual return of percent.

Solution Preview

a)
Effective period of deposit = April 21, 2006 thru April 23, 2036 = 30 years +2 days = 30.00548 years
Where present value is PV $1163
And Future value is FV is $10,000
FV = ...

Solution Summary

Solution describes steps and formulas to calculate rate of return based on present and future values of securities at various periods.

$2.19