Laura is thinking of a bond that generates payments every 3 months. An other investment of similar risk is expected to get a compound return of 29.7% in total from beginning to end of 2-years. What rate should Laura use to discount cash flows expected from the bond?
Laura is thinking of a bond that generates payments every 3 months. An other investment of similar risk is expected to get a compound return of 29.7% in total from beginning to end of 2-years. What rate should Laura use to discount cash flows expected from the bond?
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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Laura is thinking of a bond that generates payments every 3 months. An other investment of similar risk is expected to get a compound return of 29.7% in total from beginning to end of 2-years. What rate should Laura use to discount cash flows expected from the bond?
Expert Solution
Given information:
We have;
Two years Interest rate as 29.7%
Laura's bond generates payment every three months or Quarterly Payments
Total number of Quarters in a year is 4
Total number of Quarters in two year is
To Find:
- Quarterly rate
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