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

-Suppose the term structure of interest rates is shown below: Consider an investment that pays $1900 certain at the end of each of the next four years. If the investment costs $6650 and has a net present value (NPV) of $142.31, then the four year risk-free interest rate is closest to ________.
A) 4.01%
B) 3.51%
C) 5.01%
D) 4.51%

Question

Use the table for the question(s) below.
Suppose the term structure of interest rates is shown below:
 
-Suppose the term structure of interest rates is shown below:  Consider an investment that pays $1900 certain at the end of each of the next four years. If the investment costs $6650 and has a net present value (NPV) of $142.31, then the four year risk-free interest rate is closest to ________.
A) 4.01% 
B) 3.51% 
C) 5.01% 
D) 4.51%

Quizplus · Accepted Answer

D) NPV = 142.31 = -6650 + 1900 / (1.05)¹ + 1900/(1.048)² + 1900 /(1.046)³ +1900/(1 + x)⁴ 6650 + 142.31 - 1900/(1.05)¹ + 1900/(1.048)² + 1900/(1.046)³ = 1900/(1 + x)⁴ X = 0.0451 or 4.51%

Use the Table for the Question(s) Below