Springfield Learning sold zero-coupon bonds (bonds that don’t pay any interest—instead the bondholder gets just one payment, coming when the bond matures, from the issuer) and received $900 for each bond that will pay $20,000 when it matures in 30 years.
a. At what rate is Springfield Learning borrowing the money from investors?
b. If Nancy Muntz purchased a bond at the offering for $900 and sold it 10 years later for the market price of $3,500, what annual rate of return did she earn?
c. If Barney Gumble purchased Muntz’s bond at the market price of $3,500 and held it 20 years until maturity, what annual rate of return would he have earned?