You are considering investing in a zero-coupon bond that will pay you its face value of $1000 in ten years.If the bond is currently selling for $485.20,then the internal rate of return (IRR)for investing in this bond is closest to:
A)12%
B)8.0%
C)7.5%
D)10%
E)9%

Question

Quizplus · Accepted Answer

To calculate the IRR in this case, we need to solve for the interest rate that equates the current market price of the bond with its future value at maturity. Using a financial calculator or Excel's IRR function, we get an IRR of approximately 7.5%. Therefore, Choice C is the closest option to the calculated IRR.

You Are Considering Investing in a Zero-Coupon Bond That Will