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natta225 [31]
3 years ago
8

Find the effective rate of the compound interest rate or investment. (Round your answer to two decimal places.) A $50,000 zero-c

oupon bond maturing in 8 years and selling now for $43,035. %
Mathematics
1 answer:
Mariulka [41]3 years ago
3 0

Answer:

Ans. Effective annual rate=1.8928%

Annual Compound semi-annually=1.8839%

Step-by-step explanation:

Hi, this is the formula to find the effective annual rate for this zero-coupon bond.

EffectiveAnnualRate=\sqrt[n]{\frac{FaceValue}{Price} } -1

n= years to maturity

That is:

EffectiveAnnualRate=\sqrt[8]{\frac{50,000}{43,035} } -1=0.018928

Means that the effective interest rate is 1.8928% effective annual

Now, let´s find the compound interest rate.

First, we have to turn this rate effective semi-annually

Semi-AnnualRate=(1+0.018928)^{\frac{1}{2} }  -1=0.00942

0.942% effective semi annual

To turn this into a semi-annual, compounded semi-annually, we just have to multiply by 2, so we get.

1.8839% compounded semi-annually

Best of luck

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