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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