Suppose the U

question 153

Multiple Choice

Suppose the U.S.Treasury offers to sell you a bond for $747.25.No payments will be made until the bond matures 5 years from now,at which time it will be redeemed for $1,000.What interest rate would you earn if you bought this bond at the offer price?

• A)4.37%
• B)4.86%
• C)5.40%
• D)6.00%
• E)6.60%

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Definitions:

Compound Interest

Interest that accumulates on the initial amount invested and on the interest that has previously been added to that amount.

Installment Note

A debt instrument requiring the borrower to make regular payments of principal and interest over a set period until the debt is paid in full.

Interest

The cost of borrowing money or the payment received for lending money, typically expressed as an annual percentage rate.

Principal Repayment

The process of paying back the original amount borrowed from a lender, excluding interests.