Question

Oscar Wright of Carson City, Nevada, while

combing through his great-grandmothers trunk of

remembrances, found a State of Nevada Bond that was issued the day Nevada became the 36

th

state on October 31, 1864. This State of Nevada bond has a face value of $100 and a stated

interest rate of 22%. Why do you think the interest rate is so high? If the State of Nevada agrees

to pay Oscar the face value of this bond plus interest through October 31 of last year, how much

will he receive?

Answer 1

WHY DO YOU THINK THE INTEREST RATE IS SO HIGH?

NAVADA BECAME THE 36TH STATE ON OCTOBER 31 ,1964.. IT IS CLEAR THAT DEVELOPMENT OF THE STATE IS A CRUCIAL FACTOR AND MORE INVESTMENTS ARE NEEDED FOR THIS PURPOSE.. AS IT IS A NEW STATE ,RAISING FUND FROM PUBLIC IS MORE IMPORTANT .PEOPLE WILL READY TO INVEST MORE IF THE RETURN FROM THAT INVESTMENT IS HIGH.........

IN THE ABOVE CASE IT IS CLEAR THAT THE INTEREST RATE IS TOO HIGH.THAT MEANS THE STATE WANT TO RAISE MORE FUND THROUGH BOND..EVEN A POOR MAN ALSO WILL READY TO INVEST IN THAT BOND DUE TO THE HIGH INTEREST RATE OFFERED BY THEM...............THAT IS WHY HE INTEREST RATE FIXED TO A HIGH AMOUNT......

IF A PERSON INVESTED $100 IN OCTOBER 31,1864    HE WILL RECEIVE THE FACE VALUE OF $100 PLUS INTEREST RATE THROUGH OCTOBER 31,2019, THAT IS FOR 155 YEARS

100+(100*22/100*155) = $3510

THAT MEANS OSCAR WILL RECEIVE $3510 IF HE SURRENDER THE BOND

THANK YOU