Problem 10. You have loaned Mr. Brown $1,000 on the condition that he repay you in ten equal annual installments at 4% annual effective rate of interest. The fifth installment is now due. You and Mr. Brown agree that for $525 in addition to the fifth installment, the loan will be paid off. What is your yield rate under this arrangement?
Problem 10. You have loaned Mr. Brown $1,000 on the condition that he repay you in ten equal annual installments at 4% annual effective rate of interest. The fifth installment is now due. You and Mr. Brown agree that for $525 in addition to the fifth installment, the loan will be paid off. What is your yield rate under this arrangement?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Problem 10. You have loaned Mr. Brown $1,000 on the condition that he repay
you in ten equal annual installments at 4% annual effective rate of interest.
The fifth installment is now due. You and Mr. Brown agree that for $525 in addition
to the fifth installment, the loan will be paid off.
What is your yield rate under this arrangement?
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As we discussed in class, a flat yield curve means interest rates are the same for all maturities.
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