Suppose the Term Structure of Interest Rates Is Shown Below

question 103

Multiple Choice

Suppose the term structure of interest rates is shown below: Consider an investment that pays $1900 certain at the end of each of the next four years. If the investment costs $6650 and has a net present value (NPV) of $142.31, then the four year risk-free interest rate is closest to ________.

• A)4.01%
• B)3.51%
• C)5.01%
• D)4.51%

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Definitions:

Allegiance

Loyalty or commitment of an individual to a group, cause, or nation.

Revolution

A fundamental and relatively quick change in political power or organizational structures that takes place when the population revolts against current authorities, often leading to significant societal transformation.

Republicanism

A political ideology centered on citizenship in a state organized as a republic under which the people hold popular sovereignty.