Question

You have purchased a U.S. Treasury bond for $3,000. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $5,000.
What interest rate will you earn on this bond?
Select one:
a. 3.82%
b. 4.25%
c. 4.72%
d. 5.24%
e. 5.77%

Answer 1

Answer:

rate = 5.24 %

so correct option is d. 5.24%

Explanation:

given data

purchased bond initial amount = $3,000

Maturity amount = $5,000

time period = 10 years

to find out

interest rate  earn on this bond

solution

we know here initial amount and final amount with time period so

we will apply here Maturity amount formula that is

Maturity amount = initial amount × $(1+rare)^{time}$     .................1

put here value we get

Maturity amount = initial amount × $(1+rare)^{time}$  

5000 = 3000 × $(1+rare)^{10}$      

1.6667 - 1 = $(rare)^{10}$      

solve it we get

rate = 5.24 %

so correct option is d. 5.24%