Use the table for the question(s) below.
Suppose the term structure of interest rates is shown below:

-Consider an investment that pays $1000 certain at the end of each of the next four years.If the investment costs $3,500 and has an NPV of $74.26,then the four year risk-free interest rate is closest to:
A) 4.5%
B) 4.58%
C) 4.55%
D) 4.53%

Question

Use the table for the question(s) below.
Suppose the term structure of interest rates is shown below:
 
-Consider an investment that pays $1000 certain at the end of each of the next four years.If the investment costs $3,500 and has an NPV of $74.26,then the four year risk-free interest rate is closest to:
A) 4.5% 
B) 4.58% 
C) 4.55% 
D) 4.53%

Quizplus · Accepted Answer

D) NPV = 74.26 = -3500 + 1000 / (1.05)¹ + 1000 / (1.048)² + 1000 / (1.046)³ + 1000 / (1 + x)⁴ 3574.26 - 1000 / (1.05)¹ + 1000 / (1.048)² + 1000 / (1.046)³ = 1000 / (1 + x)⁴ 837.60 = 1000 / (1 + X)⁴ ==>> (1 + X)⁴ = 1000 / 837.60 ==>> X = .0453 or 4.53%

Use the Table for the Question(s) Below