Joey buys a bond for $10,000 that will mature in 25 years.He will receive a single payment of $150,000 when the bond reaches maturity.What is the interest rate?
A)15%
B)11.44%
C)114.4%
D)6.67%
E)10%

Question

Quizplus · Accepted Answer

To find the interest rate, we can use the formula:
Present value = Future value / (1 + r)^n
where r is the interest rate and n is the number of years.

Substituting the given values:
Present value = $10,000
Future value = $150,000
n = 25 years

$10,000 = $150,000 / (1 + r)^25
(1 + r)^25 = 15
1 + r = 15^(1/25)
1 + r = 1.1144
r = 0.1144 or 11.44%

Therefore, the answer is B) 11.44%.

Joey Buys a Bond for $10,000 That Will Mature in 25