Suppose a bond offers to pay $1000 in one year and currently sells for $900. Given this information, we know that the interest rate on the bond is:Group of answer choices9%.10%.11.1%90%110%
Question
Suppose a bond offers to pay 900. Given this information, we know that the interest rate on the bond is:Group of answer choices9%.10%.11.1%90%110%
Solution
The interest rate on a bond can be calculated using the formula:
Interest Rate = (Face Value - Purchase Price) / Purchase Price
In this case, the face value of the bond is 900.
So, the interest rate would be:
Interest Rate = (900) / 100 / $900 = 0.1111 or 11.1%
So, the interest rate on the bond is 11.1%.
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