Ms. Kessler bought 100 bonds for $91.25 each. At the end of 2 years the bonds matured and she collected the par value of

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Gmat_mission: Legendary Member; Posts: 1622; Joined: Thu Mar 01, 2018 7:22 amFollowed by: 2 members

by Gmat_mission » Wed Mar 24, 2021 8:24 am

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Ms. Kessler bought 100 bonds for $91.25 each. At the end of 2 years, the bonds matured and she collected the par value of $100 each. In addition, she collected interest for the 2 years at an annual rate of 2.75 percent of par value. What was Ms. Kessler's effective simple annual interest rate of return on her investment, to the nearest tenth of a percent?

A. 4.4%
B. 6.8%
C. 7.8%
D. 12.6%
E. 15.6%

Answer: C

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Re: Ms. Kessler bought 100 bonds for $91.25 each. At the end of 2 years the bonds matured and she collected the par valu

by Scott@TargetTestPrep » Wed Mar 31, 2021 8:22 am

Gmat_mission wrote: ↑
Wed Mar 24, 2021 8:24 am
Ms. Kessler bought 100 bonds for $91.25 each. At the end of 2 years, the bonds matured and she collected the par value of $100 each. In addition, she collected interest for the 2 years at an annual rate of 2.75 percent of par value. What was Ms. Kessler's effective simple annual interest rate of return on her investment, to the nearest tenth of a percent?

A. 4.4%
B. 6.8%
C. 7.8%
D. 12.6%
E. 15.6%

Answer: C

Solution:

In total, each bond has a value of 100 + 100 x 0.0275 x 2 = $105.50 at the end of the 2 years. This is 105.5 - 91.25 = $14.25 more than its value at the beginning of the 2-year period. Since the extra $14.25 is for a 2-year period, the annual simple interest rate is:

(14.25/2) / 91.25 x 100 ≈ 7.8 percent

Answer: C

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