Question

Please do all work by hand - and not using excel! I will give a thumbs up :)

ABC Corporation's recently issued bonds paying interest semiannually and maturing in 10 years. The face value of each bond is $1000, and 8% is the nominal interest rate. (a) What is the effective interest rate an investor receives? (b) If a 1.75% fee is deducted by the brokerage firm form initial $1000, what is the effective annual interest rate paid by ABC Corporations?

Answer 1

Face Value 1000 noneinal interest rate : 8% Effective interest rate: (1+2) = lil is dinided by 2 since it is paid semi annually) ETQ = (1 +98) 31 = (1.04)/ = 1:08:16 -| = 0:0816 = 8.16% is the effective interst 2 rate. Maturity value after 10 years : FV = P litin = looolito. 0816 ) = 1000 (10816 )0 $ 1000 x 2:19112 = $ 2191/23 Lectine interest amount innestar reclines: the - 2000 $2191.123- $1191,123 - Scanned with CamScanner

e deduction : 1.75l Effective intereel sale: (lto.042_1 => 0.0816 or 8:16%. If brokerage is paid, effective ب قلم to-ostota of d > 8016 %. + 1.75%. => 9.91% is the effective - interest rate paid ley. ABC Scanned with CamScanner