You are thinking about buying a savings bond. The bond costs $50 today and will mature in 9 years with a value of $100. What annual interest rate will the bond earn? The bond will earn an annual rate of _____%. (Round to two decimal places.)
You are thinking about buying a savings bond. The bond costs $50 today and will mature in 9 years with a value of $100. What annual interest rate will the bond earn? The bond will earn an annual rate of _____%. (Round to two decimal places.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
You are thinking about buying a savings bond. The bond costs
$50 today and will mature in 9 years with a value of $100.
What annual interest rate will the bond earn?The bond will earn an annual rate of
_____%.
(Round to two decimal places.)Expert Solution
Step 1 Introduction
This bond is given in the question is Zero-Coupon Bond which is an issue at discount and mature at face value. There is no payment of interest over the life, here the difference between the face value and the discounted price is the return of holding. Here we will use the following formula to find the interest rate
Current price of zero-coupon bond = Face value / (1+ interest rate)n
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