Suppose the term structure of interest rates is shown below: Term 1 year 2 years 3...

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Suppose the term structure of interest rates is shown below: Term 1 year 2 years 3 years 5 years Rate (EAR%) 4.80% 4.60% 4.50% Consider an investment that pays $1,400 certain at the end of each of the next four years. If the investment costs $4,900 and has a net present value (NPV) of $104, then the four year risk-free interest rate is closest to: A. 4.54% B. 3.54% C. 4.04% D. 5.04% 5.00% 10 years 4.25% 20 years 4.15% Suppose the term structure of interest rates is shown below: Term 1 year 2 years 3 years 5 years Rate (EAR%) 4.80% 4.60% 4.50% Consider an investment that pays $1,400 certain at the end of each of the next four years. If the investment costs $4,900 and has a net present value (NPV) of $104, then the four year risk-free interest rate is closest to: A. 4.54% B. 3.54% C. 4.04% D. 5.04% 5.00% 10 years 4.25% 20 years 4.15%

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Solution The cash flows are shown as follows Net Present Value ... View the full answer