A one-year discount bond with a face value of $10,000 that is currently selling for $9,400 has an interest rate of
A) 3.10%.
B) 6%.
C) 6.38%.
D) 60%.

Question

Quizplus · Accepted Answer

The formula to calculate the interest rate of discount bonds is:

Interest rate = (Face value - Selling price) / Face value * time period

In this case, the face value is $10,000, the selling price is $9,400, and the time period is 1 year.

Interest rate = (10,000 - 9,400) / 10,000 * 1 = 0.06 or 6.38%

Therefore, the interest rate of the bond is 6.38%, so the correct answer is C.

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