A one-year discount bond with a face value of $10,000 that is currently selling for $9400 has an interest rate of
A)3.1%.
B)6%.
C)6.38%.
D)60%.

Question

Quizplus · Accepted Answer

The calculation to find the interest rate is:

Discount = Face value - Selling price 
Discount = $10,000 - $9,400 
Discount = $600

The interest rate can be calculated using the formula:

Interest rate = (Discount / Face value) x (360 / Days until maturity)

Since this is a one-year bond, Days until maturity = 365.

Interest rate = ($600 / $10,000) x (360 / 365) 
Interest rate = 0.06 or 6%

Therefore, the correct answer is (C) 6.38%.

A One-Year Discount Bond with a Face Value of $10,000