Answer:
100, 10.5
Explanation:
1000 x .95= 950
1000x1.05=1050
1050-950= 100
100/950= 10.5
1. When the bond is redeemed at maturity, the total return (profit) for Timothy will be $100.00.
2. The total return on investment will be 10.5%.
The return on bonds is the profit gained from the purchase of the bonds.
The profit includes all the capital gains (discount received) and interest revenues received until maturity.
Face value = $1,000
Purchase price = $950 ($1,000 x 1 - 5%)
Discount = $50 ($1,000 - $950)
Maturity period = 1 year
Coupon rate = 5%
Interest payment = semi-annual
Annual interest = $50 ($1,000 x 5%)
Total profit at maturity = $100 ($50 + $50)
Total return on investment = 10.5% ($100/$950 x 100)
Thus, when the bond is redeemed at maturity, the total return (profit) for Timothy will be $100.00 at 10.5%.
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