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WINSTONCH [101]
3 years ago
12

Suppose the U.S. Treasury offers to sell you a bond for $687.25. No payments will be made until the bond matures 5 years from no

w, at which time it will be redeemed for $1,000. What interest rate would you earn if you bought this bond at the offer price
Business
1 answer:
pantera1 [17]3 years ago
5 0

Answer:

6%

Explanation:

Data provided as per question is as given below:-

Redeemed amount = $1,000

Sale value of Bond = $687.25

Number of year = 5

The computation of interest rate is as shown below:-

Interest rate = (Redeemed amount ÷ Sale value of bond) ^ (1 ÷ Number of Year) - 1

= (1,000 ÷ 747.25) ^ (1 ÷ 5) - 1

= (1.338) ^ (0.2) - 1

= 0.06

= 6%

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Answer:

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