Option B is correct
Let r = interest rate
Present value of $55 in one year = $55 / (1+r)^1 = $55 / (1+r)
Present value of $133 in three years = $133 / (1+r)^3
Present value of $55 in one year + Present value of $133 in three years = $150
[$55 / (1+r)] + [$133 / (1+r)^3] = $150
[$ 55 (1+r)^2] + $133 = $150 * (1+r)^3
[55 (1+r^2 + 2r)] + 133 = 150 (1+r^3 +3r + 3r^2)
55 + 55r^2 + 110r +133 = 150 + 150r^3 + 450r + 450r^2
150r^3 + 395r^2 + 340r - 38 = 0
r = 10%
Answer: A AACSB: Analytical Thinking 6) If a security pays $55 in one year and $133...
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