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2 years ago

A 10-year, 10.00%, $5,000 bond that pays dividends quarterly can be purchased for $4,610.

Business

1 answer:

aliina [53]2 years ago

7 0

Answer: a. 11.00% - 12.00%

Explanation:

We can find the rate using Excel.

Payments are quarterly so we need to adjust the variables to quarterly figures:

Period = 10 years * 4 = 40 quarters

Present value = $4,610 (should be a negative number)

Future value = $5,000 at maturity

The effective rate will be 2.9% as shown in the attachment.

This is a quarterly figure so convert it to annual:

= 2.9 * 4

= 11.6%

<em>It is between 11% and 12%</em>

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