# BUS 401

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Suppose a zero-coupon bond is selling for \$614.00 today. It promises to pay \$1,000 in exactly 10 years with annual compounding. Its annual rate of return would be about

• BUS 401 -

1000=614(1+i)^10

1000/614=(1+i)^10
taking log of each side
.2188= 10 log(1+i)
.02188=log(1+i)
1-i= 10^ .2188=1.05167

i= 5.167percent

Double check all that, it is slightly off

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