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Q: Calculating Interest Rate ( No Answer,   5 Comments )
Question  
Subject: Calculating Interest Rate
Category: Business and Money > Finance
Asked by: guzmanr9-ga
List Price: $2.00
Posted: 14 Feb 2006 11:59 PST
Expires: 16 Mar 2006 11:59 PST
Question ID: 445745
A zero-coupon bond which will pay $1,000 in 10 years is selling
today for $422.41. What annual interest rate does the bond offer?
Answer  
There is no answer at this time.

Comments  
Subject: Re: Calculating Interest Rate
From: thither-ga on 14 Feb 2006 17:03 PST
 
9% if I'm not mistaken.

Have a good day.
Subject: Re: Calculating Interest Rate
From: guzmanr9-ga on 14 Feb 2006 18:10 PST
 
Very short answer, did not elaborate or offer an analysis...I realize
the payoff on this question is low, however, can pay more for a
greater effort
Subject: Re: Calculating Interest Rate
From: myoarin-ga on 14 Feb 2006 18:18 PST
 
Guzman9,
A lot of your questions look like homework, which shouldn't be
answered on G-A.)  9% pa is correct.
Subject: Re: Calculating Interest Rate
From: thither-ga on 14 Feb 2006 21:08 PST
 
Comments are free; only researchers get paid for their answers.

This is from the answer to a previous question of yours (Question ID:
445741) and is the formula which I used:

"Hi guzmanr9-ga,

Compounded interest follows a relatively straightforward formula:

P(1+r)^t

Where:
P = Principal amount
r = rate of return
t = time elapsed"

You know P, t and the final value so: 422.41(1+r)^10=1000.

Solve for r. 

Have a good day.
Subject: Re: Calculating Interest Rate
From: nurbs297-ga on 16 Feb 2006 07:56 PST
 
thither is completly right.. In a zero coupin bond .. you don't have
coupon ( which might complicate your life) .. you are left with
principal and the final return .. and all you have to do is use
compound interest formulae. ( Only in case where you don't want the
annual interest rate i.e not compounded annually will the formulae
different.. )

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