You will buy a security that pays $75 in one year and $95 in two years. There
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Question:
You will buy a security that pays $75 in one year and $95 in two years. There is no risk of default, and you note that the market interest rate is 4% on a similar security.
a. How much are you willing to pay for this security? Show your calculations. Include two decimals in the price.
b. What is your yield to maturity if you bought at the price you calculated above?
c. After 1 year, you receive the $75 and sell your security for $88. What was your rate of return?
d. What is the market interest rate at the time you are selling? (Write the answer to c. and d. as a percentage, and keep two decimals if relevant. I.e: write 13.25%, not 13% or 0.13)
Related Book For
Fundamentals of Financial Accounting
ISBN: 978-0078025914
5th edition
Authors: Fred Phillips, Robert Libby, Patricia Libby
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