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Suppose the U.S. Treasury offers to sell you a bond for $747.25. No payments will be made until the bond matures 5 years from now, 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? 1. 4.37%2. 4.86%3. 5.40%4. 6.00%5. 6.60%

Respuesta :

Answer:

r = 6.00%

Explanation:

given data:

bond price = $747.25

[tex]V = \frac{P}{(1+r)^n}[/tex]

[tex] 747.25 = \frac{1000}{(1+r)^5}[/tex]

[tex](1+r)^5= \frac{1000}{747.25}[/tex]

1.33824  =(1+r)^5

taking log on both side

5 ln (1+r)= ln 1.33824

[tex]ln (1+r)= \frac{0.291355477}{5}[/tex]

ln (1+r) = .05827

[tex]1+r =e^{0.05827}[/tex]

1+r =1.06

r=0.06

r = 6.00%

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