Question

Part 1

A zero-coupon bond is a security that pays no interest, and is therefore bought at a substantial discount from its face value. If the interest rate is 9% with annual compounding how much would you pay today for a zero-coupon bond with a face value of $1,700 that matures in 4 years?

Please round your answer to the nearest hundredth.

Part 2

A financial institution offers a "double-your-money" savings account in which you will have $2 in 4 years for every dollar you invest today. What annual interest rate does this account offer?

Please specify your answer in decimal terms and round your answer to the nearest thousandth (e.g., enter 12.3 percent as 0.123)

Answer 1

B A Part-1 $1,204.32 2 Part-2 0.189 1

CAlc:

A 1 Part-1 2 Part-2 B =PV(9%,4,0,-1700) =RATE(4,0,-1,2)