You have purchased a U.S. Treasury bond for $3,000. No payments will be made until the bond matures 10 years from now, at which time it will be redeemed for $5,000. What interest rate will you earn on this bond

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andromache andromache · Answer 1 · 2020-07-04T08:38:04+02:00

Answer:

.05241 or 5.241%

Explanation:

The computation of the interest rate earned on the bond is shown below;

As we know that

Interest rate = (Redemption price ÷ offer price)^1 ÷ number of years - 1

= ($5,000 ÷ $3,000) ^1 ÷ 10 - 1

= (1.67)^1 ÷ 10 - 1

= (1.67)^.1 - 1

= 1.05241 - 1

= .05241 or 5.241%

We simply applied the above formula so that we can easily determine the

interest rate earned on the bond