A $5000 bond with interest at j₂ = 10% is redeemable at 98 in 10 years.It is purchased at a pricing yield rate of j₂ = x% and the resultant price is $5080.Using the method of averages,determine x A)10.38% B)9.66% C)5.19% D)4.83%

Question

Quizplus · Accepted Answer

Using the method of averages, we have:

Average yield rate = [(Redemption value / Purchase price)^(1/n) - 1] x 100
where n = number of years to maturity

Plugging in the given values, we get:

10% = [(98/5080)^(1/10) - 1] x 100

Solving for x, we get:

x = 9.66%

Therefore, the best choice is B, 9.66%, as this is the yield rate that makes the purchase price of the bond equal to $5080.

A $5000 Bond with Interest at J2 = 10% Is

A $5000 Bond with Interest at J₂ = 10% Is